Banks will have to keep provisions if the market price of the investments made in listed and non-listed companies falls or their net worth deteriorates, according to the central bank.

If the net worth — the difference between assets and liabilities — of the investment in non-listed companies declines, banks will have to set aside provisions in proportion to the funds invested, said the Bangladesh Bank in a circular yesterday.

The instructions will come into effect on June 30.

The notice said if non-listed companies go out of business or have no visible activities, lenders will have to keep provisions against their entire investments.

If banks don’t get interest or dividend from their investments in non-convertible cumulative preference shares, they will have to keep a provision equivalent to 25 per cent of the investments in the first year.

Another 25 per cent provision will have to be kept in the second year and it would go up to 100 per cent in the third year if the interest or dividends remain unrealised.

The same provision rates will be applied if the profit or coupon payments remain due in the case of non-convertible bonds and debentures.

When the surrender price drops below the purchase price regarding the investments in open-ended and non-listed mutual funds, banks will have to keep a provision that is equivalent to the gap between the two values, the BB notice said.

The surrender value is the actual sum of money mutual fund-holders receive if they try to access the cash value of the investments.

In the case of investments in listed securities, banks have been asked to set aside provisions if the last trading price of a stock, bond, debenture, perpetual instrument and mutual fund unit slips below the price at which they are bought.

Banks have to maintain the provision on a quarterly basis, the BB added.