Large industries, SMEs and the agricultural sector affected by the floods will benefit from a flexible loan repayment facility until December this year, as Bangladesh Bank yesterday revived the partial loan moratorium amid worsening of the economic crisis.
The central bank’s decision came after the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), the country’s top trade body, pushed for a relaxed loan classification policy until December.
Bank chief executives and economists, however, have opposed any relaxation of loan repayment rules as it worsens the financial health of lenders and instills a bad habit among borrowers.
They argued that although the eased loan repayment facility reduces the amount of bad debts for the time being, it ultimately increases the amount of delinquent loans.
Yesterday, the BB said it found that borrowers are struggling to repay their loans due to rising prices for raw materials and other inputs as well as transport costs.
He pointed to the negative impacts of the lingering coronavirus pandemic, increasing virus infections, flooding in northern and northeastern regions and escalating commodity prices around the world for the Russian- Ukrainian.
The postponement support aims to maintain the momentum of economic activities and credit growth in the private sector, the BB said in a notice.
According to the latest instructions from the BB, borrowers in major industries could avoid falling into the defaulted loan category by repaying half of the loans payable for the April-June period.
Borrowers must repay 60% of their outstanding loans in the July-September quarter and 80% in the fourth quarter of 2022 if they do not want to be classified as defaulters.
For Small and Medium Craft Enterprises (MSMEs), borrowers must pay 25% of repayable loans in the April to June quarter, 30% in the second quarter and 40% in the last quarter of the year to avoid falling into the failing category.
Only term loans, with a repayment period longer than one year, will be eligible for the new, relaxed grading treatment, the notice said.
In flood-affected areas identified by the Ministry of Disaster Management and Relief, borrowing farmers will not be declared defaulters even if they do not pay any installments between April and December.
CMSME borrowers in affected areas will be required to repay 25% of outstanding loans for the nine-month period.
Working capital loans due April 1 of this year can be repaid by December. These loans are taken out to finance the day-to-day operations of a business.
The unpaid portion of the loans, payable during the nine-month period, will be added to next year’s loans and the size of installments will be adjusted accordingly, the BB said.
Banks cannot impose any penalty interest or fees on beneficiaries for the period April-December.
Loans that were unclassified as of April 1 this year will only be eligible for the new eased repayment facility.
Borrowers who benefited from the relaxed BB facility in 2019 could also benefit from the deferral assistance.
The BB, however, did not specify whether banks would be allowed to show their unrealized interest on loans with deferral support as revenue and how much funds lenders must keep aside as a provision to cover loan losses.
Instructions to this effect will be given at a later date, the notice states.
Borrowers in Bangladesh have been granted a year-round payment holiday throughout 2020 due to the pandemic and could avoid falling into default by paying 15% of the installments payable for 2021.
The central bank has halted support since the start of this year as virus infections waned, paving the way for a strong rebound in the economy, before coming under pressure after the Russia-Ukraine war.