Biting Bullets

Commercial banks will be forced to bite the bullet with higher taxes and long awaited haircuts on collateral due next year.
Provisions for bad loans are expected to rise after the Central Bank announcement that haircuts on collateral values will be enforced from next year. rn

rnBankers said they would take a hit, with a part of the higher provisioning this year, when the profits from bond trading have ballooned their bottomline. rn

rnProvisions for bad debts are made after deducting the value of the collateral for the loan. rn

rnBut under the new mandatory haircuts announced by the regulator, banks will only be allowed to set off a part of the collateral value.rn

rnFurther cuts on the collateral value backing Non Performing Loans (NPL) will have to be made as the debt becomes older.rn

rnStarting next year, Commercial banks will be forced to provide a 40 percent provision on collateral of non-performing debts that are over a year old.rn

rnOnly 60 per cent of the forced sale value of the col