Banks asked to make shock recovery plan

Bangladesh Bank yesterday asked banks to draw up a recovery plan so that they can take time-befitting moves to resolve any downside risk emanating from default loans, liquidity crisis and some other factors.

The guideline will help banks avert catastrophic losses by a substantial extent, said a Bangladesh Bank official.

Every bank will have to prepare the plan and submit it to the central bank within January every year.

But the first recovery plan will have to be submitted by June 30 this year with prior approval from the board of directors of the respective banks.

A bank will have to identify a list of credible options that it can adapt to restore its financial strength.

The central bank mentioned a good number of downside risks, which may subsequently create a major shock for banks.

For instance, declining profitability, decrease in revenue sources, the sudden withdrawal of deposits, decrease in capital ratios and deterioration of asset quality can put an adverse impact on the financial health of lenders.

If banks timely address the issues by way of having the recovery plans in place, they can avoid any dire consequence related to their financial health, explained the BB official.

The central bank asked the management of banks to reassess or verify the recovery plan at least annually in response to any probable shock that may hit the lenders' financial health.

Banks' boards are responsible for overseeing their recovery planning process.

The board will review and approve the recovery plan at least annually, and as needed to address significant changes made by the management.