Bangladesh Bank’s latest loan rescheduling policy will make it harder to recover overdue loans, experts have said, adding that if banks cannot recover their debts, they will find it difficult to repay what customers have deposit.
It will also affect cash flow to banks, as customers will lose interest in depositing money in banks, they added.
Those affected have said that voluntary defaulters will feel more encouraged by this central bank policy. Even though the volume of delinquent loans will be low on paper due to the policy, banks will not be able to recover their loans.
The Bangladesh Bank has restructured its loan rescheduling policy by extending the repayment period by five and reducing the down payment by four to help defaulting debtors maintain the regularity of their accounts.
As of now, a large defaulter with a term loan above Tk 500 crore can get a repayment period of up to 29 years.
In the case of installments, defaulters will provide the greater of 4.5% of the total overdue amount or 7% of the overdue installment, whichever is less, whereas previously defaulters had to pay the lower 15% higher amounts of the overdue amount when rescheduling the loan, according to a central bank circular released last week.
Such large offers to policy violators have not only made bankers and pundits skeptical about the effectiveness of the policy but also raised questions among various Bangladeshi Bank officials.
Saleh Uddin Ahmed, former governor of the Bangladesh Bank, said the wholesale concessions offered by the central bank in its new loan rescheduling policy are undesirable.
Offers should have been made on a case-by-case basis, he observed, adding that some facilities could be offered to those who are truly at a disadvantage.
“Due to the extended offers, the loan money will not come back to the banks, which will lead to a liquidity crisis for the banks. In addition, small and medium enterprises will not get loans.”
He further said that the Bangladesh Bank should review the policy for six months and then reverse it if necessary.
Under the new rescheduling policy, banks can reschedule a term loan of Tk 500 crore or above four times for a total period of 29 years – eight years each on the first two occasions, and seven years and six years in the subsequent ones. last two cases.
Loans of Tk 100 crore to Tk 499 crore can be rescheduled four times for a total period of 25 years – seven years each the first two times, and six years and five years the last two, respectively. On the other hand, loans below Tk 100 crore can be rescheduled for a total period of 21 years.
Apart from this, the banks can also restructure the loans regularly and in such cases, 50% of the remaining term can be extended without any down payment.
Previously, a loan in first stage of default could be rescheduled for three five-year terms.
Meanwhile, bad loans – in the second phase of default status – could be rescheduled three times for a period of four and a half years. The repayment term was similar in the case of the rescheduling of bad debts.
Chief executives of several state-owned banks, however, welcomed the central bank’s decision to leave implementation of the new policy to bankers, calling it a “timely decision”.
The central bank will formulate policies and banks will implement them, they said, adding that many customers do not repay their loans for legitimate reasons but have to go through lengthy processes to reschedule their loans. As a result, they become defaulters and do not obtain new credit facilities.
Now, borrowers will be able to easily reschedule their loans and feel encouraged to repay their loans.
In this regard, several central bank officials said on condition of anonymity that the new loan rescheduling policy stipulates that the request for rescheduling of usual defaults will not be considered, but it is not clear which are the usual payment defaults.
They also said that although Bangladesh’s bank circular mentions that the maximum rescheduling period will not apply equally to all borrowers, in reality this will not be the case. All customers will enjoy the same benefits.
In addition, the circular mentions that loans created by irregularities will not be considered for offers, but it is also not clear how banks will determine these loans.
In this regard, the managing director of Mutual Trust Bank, Mahbubur Rahman, also said that it was a good thing that the banks were given the power to determine which borrowers will benefit from the rescheduling facilities.
Banks will provide the facility to the right customers as per their wishes, he said. He also mentioned that Bangladesh Bank supervision is important in this regard.
The managing director of another private bank on condition of anonymity said the policy would be of more interest to those in default.
Many customers will delay payment even if they can, and some will simply take the money elsewhere, he added.
He also said banks would take legal action if they were unable to collect money from customers. But, the new policy offered great deals for defaulters. Many people who repay their loans regularly will now reschedule their loans instead of repaying them on time.
In this way, the banks will fall into danger, with their money blocked. At some point, they will face a liquidity crisis, he added.
Ahsan H Mansur, executive director of the Policy Research Institute (PRI), told TBS that many businessmen are in good shape, their cars, homes and assets are growing, but they are not repaying their loans. . The new central bank policy will cheer them up.
“They are given 29 years, and I doubt they will repay their loans. Many people run businesses and still do not repay their loans. They set up several companies and invest in them even if the companies in the name of which they take the loans do not are not in a good position.”
He further said that the businessmen demanded that they should not be considered defaulters in any way so as not to lose access to credit, and that the central bank formulated its new policy based on their request.
Now, the central bank has allowed the banking authorities to determine to whom they will grant the rescheduling facility. As the owners of the banks themselves are heavy borrowers, they will take advantage of this facility in collaboration with each other.
The new policy will be discussed at the central bank’s meeting with bankers today. At the meeting, CEOs from different banks will highlight the pros and cons of the new rescheduling policy.