The Bangladesh Bank on Monday announced the new policy of rescheduling loans after nine years to “reduce pressure on the economy”.
The new policy, introduced at a time when an International Monetary Fund team is traveling to Dhaka to discuss reforms in the monetary and economic sectors amid a global recession, includes an extension of the grace period for loan repayments and other deadlines to ease the pressure. on businesses, according to a notice issued Monday by the central bank.
Defaulters will also be allowed to reschedule their non-performing loans (NPLs) four times as opposed to the previous three times, the Bangladesh Bank notice reads.
In addition, the minimum down payment for loan rescheduling has been reduced, according to Maksuda Begum, director of the Banking Regulation and Policy Department.
“The circular was issued after taking into account the recent resurgence of COVID and the pressure on the economy,” she said.
“Given the long-term negative impact of COVID-19, global economic instability due to the recent escalation of hostilities overseas and an upsurge in COVID-19 infections, new rescheduling policies of debt are implemented to maintain the stability of the financial sector and to properly manage loans according to their category,” the notice reads.
However, the Bangladesh Bank has called for strict restrictions on the rescheduling of loans in unproductive sectors or unprofitable businesses in the productive sector.
WHAT THE NEW POLICY ALSO SAYS
The national bank has once again given big concessions to defaulters citing the logic of maintaining stability in the financial sector and the proper management of graded loans.
Under the new policy, any classified loan can be rescheduled a maximum of three times. However, a fourth rescheduling provision has been retained for defaulted loans.
Any fixed-term loan balance below Tka 1 billion can be rescheduled up to a maximum of six years with a grace period.
For any fixed-term loan balance between Tka 1 billion and Tka 5 billion, the rescheduling period is up to seven years, including a grace period.
And in case of fixed-term loans above 5 billion taka, the rescheduling period is up to eight years, which includes a grace period.
Term loans are generally granted to companies to establish new industrial units and expand their existing units and the duration of the latter is generally more than one year.
Previously, the maximum period was two to six years for the repayment of these loans.
The grace period is 6 and 12 months before defaulters have to start repaying rescheduled loans. Such a provision was absent from previous central bank policy.
Businesses that have taken out working capital and demand loans will be allowed to repay their loans in 5-7 years. It was 6-18 months before.
Businesses normally take working capital and apply for loans to cover their operating costs and the term of such loans is less than one year.
BANKING BOARDS NOW HAVE UNIQUE POWER
Previously, scheduled banks had to seek central bank approval to regularize special facility loans.
The new policy gave the exclusive power to the boards of directors to decide on the benefits that will be granted to defaulters.
According to central bank officials, the decision was made to empower banks to shed pressure from special lobby groups to reschedule loans under special facilities. For this reason, the new governor gave the banks the power to provide this facility.
DEPOSITS ARE DECREASE
The central bank cut the down payment on non-performing loans to 2.5-6.5% from the previous 10-30%.
Defaulters will have to make a down payment of 2.5-5% of their total NPLs, which had been taken from banks in the form of working capital or demand loans. The previous down payment range was 5-15%.
For exporters, after rescheduling NPLs, only 2% of rescheduled loans have to be paid to obtain new funds from banks. It was 7.5%.
Other borrowers will have to pay 3% of their delinquent loans as a deposit to obtain new loans. The previous rate was 15%.
[ Writing in English by Adil Mahmood; editing by Biswadip Das]