The Board of Directors of the Bangladesh Bank has approved a separate loan restructuring policy for the big defaulters.
The decision corresponds with an aim to recover bad loans in the wake of the ongoing political crisis. Only those who have defaulted loans worth over Tk500 crore will be able to enroll with the new package.
Emerging from a board meeting yesterday, Bangladesh Bank Deputy Governor SK Sur Chowdhury made the disclosure.
Banking sector expert Khondkar Ibrahim Khaled welcomes the decision. While talking to the Dhaka Tribune yesterday, he said making some recovery by giving special facilities is better than not recovering anything at all.
The former central bank deputy governor also said many countries have put in place such practices at crisis moments. “The policy will not hamper the earnings of the banks,” he said.
However, former Bangladesh bank governor Salehuddin Ahmed told the Dhaka Tribune: “Such privileges will give a bad message to the market. Defaulters will be encouraged to not repay loans...The policy will affect the credit discipline in the banking sector.”
The new policy allows one client to take advantage of restructuring only once and they will have to do it before June 30 this year. However, those involved in forgery will not be able to benefit from the new package.
The highest payment tenure will be 12 years for restructured term loans six years for demand and current loans. The rate of down-payment will be 2% for loans less than Tk1,000 crore and 1% for those above.
The banks will charge a minimum interest rate of 1% plus cost of fund against the restructured loans. The privileged clients will not be able to declare any cash dividend in the first three years.
After restructuring, they may borrow up to 50% of the last approved amount for demand and current loans and 60% for term loans. The loans will be classified as special mention account and banks would maintain provision at required rates with the additional 1%.
The special scheme will be canceled if clients miss two consecutive installments and the loans will be classified as per existing rules.
Financial capability and projected cash flow of the clients will have to be certified by an “A” category chartered accountant firm listed with the Bangladesh Bank. The respective financier bank will evaluate the payment capability of the clients, who are interested to take the advantages through analysing their financial projection, business plan and other risks.
Restructuring proposals will have to be sent to the central bank after getting approval from the board of directors of the respective banks and analysis by their credit committees.
Banks will publish detail information about restructuring in their annual reports. The Bangladesh Bank will issue a circular in this regard soon.
SK Sur Chowdhury yesterday said: “We made the decision to ensure loan recovery, increase the concerned banks’ earning and to give the economy a boost.
“If the big projects taken by large borrowers are closed then huge unemployment will be created,” he explained.
However, Ali Reza Iftekhar, president of the Association of Bankers Bangladesh, said: “I am not very excited about the policy change.”
He said: “The policy will not be very effective because the permitted default loan limit is high. The rate of down payment is also very poor from the point of view of the banks.”
When the country’s economy was bleeding because of the political unrest in December 2013, the central bank relaxed its rescheduling policy and continued the facility until June last year. During that period, loans above Tk18,000 crore were rescheduled.
Even after the tenure of the relaxation expired, the central bank kept on verbally pressuring the banks who were asked to bring down their classified loans to single digits.
Recently, the Beximco Group has sought rescheduling of its loans of above Tk5,000 crore until 2026.
Former central bank governor Salehuddin Ahmed said: “The Bangladesh Bank provided the policy support because the banking sector has been held hostage by some big defaulters.”
He advised the authorities to be more careful about disbursing large loans in future.