Bangladesh Bank has set its eyes on increasing liquidity rather than raising interest rates, to deal with rising inflation and the ongoing dollar crisis in the banking sector.
The central bank at the same time has pinpointed 10 weak banks to increase its vigilance over all the banks.
Its new governor Abdur Rouf Talukder, who was the former senior finance secretary, was speaking to journalists at the Jahangir Alam conference room of the central bank on Thursday.
He also said that the 10 weak banks were rated based on four factors – classified loans, capital adequacy, loan-deposit ratio and amount of provisioning.
These ratings aimed to ease the banking system as dysfunction in one bank ultimately affects others, said the governor.
However, Talukder declined to disclose the names of the 10 banks.
He noted that the Bangladesh Bank supplied $7.7 billion to the country's banks in the last fiscal year 2021-22, which resulted in a liquidity crisis in the banks.
To resolve the crisis, liquidity in the banks will increase and the interest rate will not be raised in the process, he added.
The loans given by the private sector goes to investment and around 2 million young people are joining the country's workforce every year.
"If the lending rates in the private sector are increased, investment will also decrease. That is why we are trying to increase liquidity without raising interest rates," said Talukder.
The governor also said that the Bangladesh Bank was starting a discussion process on a one-to-one basis with each of the 10 problem banks to solve their problems.
In this case, the banks will provide a 3-year business plan, the progress of which will be monitored by a senior official of the Bangladesh Bank.
The central bank governor also hoped that the dollar prices would stabilize in two months, because of lower imports in addition to improvement in other indicators.
He also informed that the interbank exchange rate of dollars will be determined based on the market price, but only when the forex market becomes stable.
Currently, Bangladesh Bank intervenes in fixing interbank exchange rate.
Dollars entered the country through export and remittance and were spent through imports, he said.
Owing to the ongoing dollar crisis, if the imports decrease accordingly, a balance will be created in the next two-three months.
Then the dollar rate can be left as floating, said the governor.
Default loan rescheduling policy amended
The governor also announced that a circular related to debt rescheduling and restructuring was issued the previous day, with the aim of ensuring transparency and accountability regarding the implementation of the decisions of the banks in debt management.
As per the circular, the central bank slightly tightened its loan rescheduling policy for defaulted loans after facing criticism from stakeholders.
A bank defaulting loan can be rescheduled up to three times.
Apart from this, if any loan defaults due to natural causes, it can be rescheduled once more under special consideration.
If the loan under rescheduling is recovered in cash only it will be added to the income of the bank.
The loan rescheduling policy was substantially relaxed on July 18, allowing defaulters to repay their term loans over a period of six years to eight years. In contrast, it was previously nine months to two years.
In that circular the borrowers were allowed to get their classified loans rescheduled for the fourth time instead of three times earlier.
In the face of various criticisms, Bangladesh Bank added these provisions by revising the policy of bank loan rescheduling and restructuring.
However, the one-time deposit and loan period have been maintained as before.
The central bank in the latest circular also said that borrowers who reschedule their non-performing loans (NPLs) would become defaulters once again if they failed to repay installments six months in a row.
According to the latest circular on Wednesday, banks will not be allowed to transfer the interest amounts, which were imposed on NPLs, to their income books after rescheduling the delinquent loans.
They will be allowed to transfer the unrealized interest to their income segment only after they realize the funds from borrowers.
Lenders will not be permitted to transfer the provisioning amount kept against the defaulted loans after rescheduling those for the third and fourth times.
The provisioning amount will be transferred to the income book of banks only after the whole amount has been realized.
A central bank official said that the revision of the previous circular would help reduce the number of delinquent borrowers to some extent.
Earlier on July 18 circular, the time limit for first and second-time rescheduling of term loans was extended to six to eight years, including a grace period instead of the previous nine to 24 months, according to a notification issued days after a new governor took over.
In the case of continuous demand for loans, the time limit for first and second-time rescheduling has been jacked up to five to seven years, including a grace period, from six to 18 months.
Besides, the borrowers were also allowed to get their classified loans rescheduled for the fourth time instead of three times earlier for the sake of recovery of the bad loans, the notification explains.
The timeline for third-and fourth-time rescheduling of all types of loans is reduced by one year from the maximum timeframe set by the central bank.
Under the new provisions, the banks will have to settle the cases of loan rescheduling and restructuring upon approval by their board as well as the executive committee on the basis of the bank-client relationship.
In that case, there is no need to receive prior approval from the central bank, according to the notification.
However, the time limit for the rescheduling of agriculture loans and micro-credit has been re-fixed at a maximum of three years instead of two.
Under the fresh provisions, the down-payment amount for the first and second-time rescheduling of term loans has been cut down to a minimum of 2.5% to 4.5% from 15% to 50% previously of the overdue installments or 5% to 7% of the total outstanding amount of a loan, whichever is less.
Regarding loan restructuring, the maturity date may be extended by a period of time not exceeding 50% instead of 25% earlier than the current remaining time to maturity.
Compromised amount, applicable to receiving a fresh loan after completing the rescheduling process, has been slashed to 3% from 15% for general borrowers while exporters may be granted further credit facility on payment of 2% of the outstanding balance instead of 7.5% previously.
The latest moves come against the backdrop of a rising trend in the NPLs in the banking sector despite close monitoring of the central bank.
The number of classified loans grew by 9.85% to Tk113,4.4 crore during the January-March period of 2022, from Tk103,274 crore in Q4 of 2021.
