BB asks banks, NBFIs not to show inflated assets, profit

The Bangladesh Bank on Sunday said the banks and non-bank financial institutions were showing inflated assets and profit after tax in their financial statements.

The BB asked the banks and NBFIs to assess the profit and assets after deducting the provisions for loans, advances, and investments.

The central bank directed the banks and NBFIs to follow the guidelines in two circulars, one issued to the banks and the other to the financial institutions.

According to the circulars, some of the banks and NBFIs are preparing financial statements by creating 'deferred tax assets', considering classified loans, advances, leases, and investments (in case of Islamic Shariah-based banks) as 'recoverable in the future' or 'to be written off'. This is resulting in inflated profits after tax and assets of the banks and NBFIs concerned.

Deferred tax is an accounting concept, also known as future income tax, meaning a future tax liability or asset, resulting from temporary differences or timing differences between the accounting value of assets and liabilitiesand their value for tax purposes.

The central bank asked the banks and the NBFIs to provide full financial information following the new guidelines.

Although the banks and NBFIs are supposed to reserve provisions for classified loans, advances, leases, and investments but they are not doing it properly, the BB observed.

The BB said the banks and NBFIs will have to include deferred tax asset and deferred tax liability in their financial statements and the estimate of deferred tax asset should be made after reserving provision for classified loans, advances, leases and investments (in case of Islamic Shariah-based banks).

It said, according to the Bangladesh Accounting Standard, if Deferred Tax Asset on the items on which income tax waiver will be available in

the future is included

in the accounts then detailed description of those items have to be mentioned in the 'notes to the accounts'.

Under no circumstances, Deferred Tax Asset and Deferred Tax Liability can be shown as net asset and liability in the balance sheet, the central bank said.

Source : New Age