The draft policy says loan defaults can be renewed with a down payment of 2% of the loan total, which would give defaulters 12 years to repay their loans, with a 7% interest rate on the restructured loan
The Bangladesh Bank has finalized a draft policy for restructuring loan defaults, providing various facilities with big loan defaulters in mind.
The central bank is set to issue a circular in this regard in the next one month, effective May 1.
The draft policy says loan defaults can be renewed with a down payment of 2% of the loan total, which would give defaulters 12 years to repay their loans, with a 7% interest rate on the restructured loan.
This facility will also be extended to 11 large industrial groups which restructured their loan defaults in 2015.
According to Bangladesh Bank sources, in 2015, 11 large industrial groups were granted a huge discount in the name of loan restructuring. With only a 1 or 2% down payment, loan defaults worth Tk 15,000 crore were renewed.
According to the central bank’s rules, in order to renew a defaulted loan, 15% of the total loan is required to be submitted in down payment. Those who take advantage of loan restructuring cannot renew this loan again.
But as the 11 groups did not pay the loan installments at the right time, interest on the loans increased to about Tk27,000 crore. Some of these industrial groups are taking out fresh loans, availing a stay order from the High Court.
In the new draft policy, these 11 industrial groups are being given the opportunity to renew their defaulted loans.
“If it is approved, banks will face a liquidity crisis and bank profits will be affected. The number of willful defaulters will go up,” a senior official of the bank told the Dhaka Tribune.
Speaking to the Dhaka Tribune, former Bangladesh Bank governor, Salehuddin Ahmed, said before any decision is made, cross-checking must be ensured and international standards maintained.
Former adviser to a caretaker government, AB Mirza Azizul Islam, said the proposed policy was absolutely meaningless and in this way loan defaults would increase, not decrease.
On March 25, after a meeting at his Shere Bangla Nagar office, Finance Minister AHM Mustafa Kamal told reporters only those able to show “logical” reasons would get 12 years to repay their loans with only a 2% down payment.
He said: “Our former finance minister, AMA Muhith, had formed a committee headed by the governor to remove mismanagement in the banking sector. In according to the committee’s recommendation, we are giving an opportunity to the defaulters. However, the opportunity will be applicable for ‘good loan defaulters.’”
At the end of December 2018, non-performing loans at banks hit nearly Tk1 trillion – the largest yet in the history of Bangladesh.
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