To reduce the volume of classified loans, the Bangladesh Bank has once again offered special concessions in the repayment of term loans given out to businesses.
In a circular issued on Sunday, the central bank justified the new concessions by saying that the real income of borrowers had fallen due to the severe impacts of the prolonged Russia-Ukraine war.
However, a classified loan is a bank loan that is at risk of default.
After giving that loan moratorium facility, no one will be considered as defaulters if 50% of the installment is deposited now.
Earlier, 75% of the installments had to be deposited to be removed from the list of defaulters.
This opportunity will be available until this month; eight more working days from Monday (December 19).
Earlier on December 12, leaders of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), the apex body of businesses, met Bangladesh Bank Governor Abdur Rouf Talukder to seek a loan waiver.
They wanted the businesses to be free from default classification even if they did not pay the loan installments until June 2023.
After that, the latest extension came in less than a week.
Bangladesh Bank has given a bunch of new discounts in view of their demands even though they have not paid the full amount, also hoping that the relaxed facility will help keep economic activities moving and make paying installments easy for borrowers.
Bangladesh Bank offer
- Loans cannot be classified if 50% of installments are paid by December 31
- The remaining 50% must be repaid within a year after maturity of the loans
* The facility was given to all types of loans throughout 2020
However, the facility of non-payment of loan installments was given to all types of loans throughout the last year of 2020 because of the pandemic.
In the following year, borrowers could avoid becoming defaulters by repaying only 15% of the installments.
But in the current year, the central bank reduced the concession slightly and instructed the repayment of 75% of the installments.
What bankers and economists say
Bankers and economists believe that despite the country's banking sector currently facing a liquidity shortage but due to the new guidelines of the central bank, there will be pressure on the fund management of banks, as all banks will fail to collect loans according to the target.
Also, many customers will back out even after promising to deposit the full installment amount.
When asked about this new facility, the managing director and CEO of a private bank, seeking anonymity, told Dhaka Tribune loan repayment by business people was nominal in the past two years due to Covid-19. That facility is given once again.
If businesses continue to get facilities in this manner, banks will find it difficult to operate, he also said, especially when banks have been going through a liquidity crisis even when they are meeting their liquidity shortages by borrowing from the central bank.
In the first six months of this year, there was a massive increase in imports, which means trade has been good. Relaxing loan repayment even after that is pointless, he pointed out.
Bankers also fear that willful defaulters may cash in on the facility.
Salehuddin Ahmed, a former governor of the Bangladesh Bank, thinks that only small and medium-sized borrowers should have been allowed to enjoy the relaxed facility.
Yes the economy is still in trouble, so relaxing the loan repayment facility can be supported. But it should not be provided to all borrowers for the sake of the financial sector, he explained.
Executive Director of the Policy Research Institute (PRI) Ahsan H Mansur said that the central bank relaxed the facility further to entertain the FBCCI's demand for big borrowers.
However, the central bank should have handed over the responsibility to banks to decide which default borrowers would be eligible for the facility and which would not, he also said.
Default loans in the banking sector may increase further once the relaxed facility is withdrawn, Mansur warned.
