The country's commercial banks are yet to adjust to the loan classification and provisioning system, which itself is far below the international standards, according to sources.

The central bank has. in the meantime, given two to three years" time to some banks, all belonging to the private sector, for fultilling the provisioning need against their bad. doubtful and sub-standard loans.

According to banking sources, small profit margins made from a less strong capital base of the private commercial banks (PCBe) has made it difficult for them W build up necessary reserves against their bad debts. At the same time.

loan provisioning did not seem to be a problem for the nationalised commercial banks (NCBs) due to their strong capital base built through repeated injection of funds by the government

According to an official es timate, the amount of bad debt of the commercial banks is about 32 per cent of the total disbursement of over Tk 24.000 crore. This amount would be much higher than the estimated figure If loans were to be classified as per international standards.

According to the standard followed in Bangladesh a loan overdue Tor more than 12 ninths is considered a substandard loan, one overdue for

more than 36 months, a 'doubtful loan' while any loan unsettled beyond-60 months is treated as a bad debt.

On the other hand, as per the. international practice, any detit overdue beyond three months is considered a substandard loan, one exceeding six months is considered doubtful while all outstanding amounts beyond 12 months automatically become bad debts.

The banks are supposed to keep 10 per cent of the substandard loans, 50 per cent of the doubtful loans and 100 per cent of the bad debts in its reserve by cutting the amount from their profits as per the provisioning system. The system was introduced in 1990 under the BCD Circular 34 to keep the financial health of the banks good.

According to banking sources, the bad loans in the private banks are mostly influenced by insider lending while those in the NCBs were due to corrupt bank officials, inefficient monitoring systems and bad lending due to lack of proper evaluation.

An official of the Bangladesh Bank, talking to The Daily Star yesterday, however, said the government can do very little other than strengthen the audit and inspection system for reducing insider lending.

He said, for reducing bad lending, the lending risk analysis (LRA) system has been introduced which would enable the banks to improve their lending performance.

He further said that the legal system would algo have to be strengthened for improving, the loan recovery performance of the banks.

The BB official said, the government is considering introducing the international loan classification system in Bangladesh. In that case radical changes would take place in the country's banking sector which may reveal some startling truths about the actual state of health of the banks, he observed