Defaulters in the port city of Chattogram will soon get loan restructuring opportunities that will allow them to clear their name from the debtor’s list.
The finance ministry has prepared a policy aimed for recipients of LTR (Loans against Trust Receipt), in other words— short term loans secured on the basis of credibility with no collateral.
Zaid Bakht, chairman of the state-owned Agrani bank has been made the chief of a recently-formed panel that is responsible for scrutinising the restructuring and rescheduling of loans.
“Normally the regulation stipulates adequate amount of obligatory security deposit for a defaulter to avail loan restructuring. But, the policy that we are about to prepare is entirely something new. This is basically aimed at recovering LTR or security deposit free loans that are granted in good faith,” Bakht told Bangla Tribune.
“According to the new policy, debtors can secure new loans if they yield enough security deposits, benefitting the bank in the process,” he added.
Bakth says he thinks businessmen should be given chances to keep the economy going. Referring to the Hall-Mark incident he said, “Not a single penny was recovered by keeping the Hall-Mark managing director and chairman behind the bars. Rather, many assets of the company have been ruined, while many got stolen. If they were given a chance while keeping them under watch, the banks perhaps would have recovered some of the funds.”
However, former central bank governor Salehuddin Ahmed doesn’t agree.
“I have doubts that the banks will benefit from providing special privileges to defaulters. The debtors who were previously granted special privileges by the central bank ended up becoming defaulters yet again,” he said.
“Unless granting loans to wilful defaulters stops, it is only the banks that will pay the price. It’s possible that the special privilege holders will take more loans harming the banks even further. ”
Bankers claim they are being forced to reschedule loans under pressure from influential clients. There is even precedent of rescheduling a loan 10 times with no success of recovering it.
State-owned Sonali Bank Managing Director Obayed Ullah Masud said, “There are basically three strategies to recover loans and rescheduling is one of them. But its success rate is very low. Our estimations say 50 percent of rescheduled loans can be recovered in good faith. The rest delay on purpose, and never pays back.”
The committee for granting loan restructuring to defaulters include top officials of Sonali, Agrani, Janata and Rupali banks, and the Chairman of Basic Bank.
Bakth said that the managing directors of the state-owned banks have already held a meeting on the issue and the chairmen will meet soon. They have also discussed the matter with the finance minister and the central bank.
“If everything goes as planned, defaulters of Chattogram can avail the special privilege from December,” he added.
He also said, “We want to offer loan restructuring opportunity against collateral to these businessmen so that they can pay the money back.”
“This is a joint initiative of state-owned banks. We want to facilitate opportunities for those commodity importers to do business, who are not being able to return their loans as well as recover funds in the process,” he elaborated.
In 2015, the central bank granted special privileges to 11 business groups and companies approving Tk 152.18 billion loans to be restructured.
Chattogram-based SA group was one of those. Six banks restructured Tk 9.28 billion of loans for the group’s SA Oil Refinery and Shamannaz. The group is asking for restructuring again, although nearly the entire amount of the huge loan is yet to be paid.
Central bank’s statistics say over Tk 500 billion of the banks’ money is in default that were disbursed as LTR. The banks got stuck in particular by granting loans on credibility to various Chattogram-based business groups.
According to information by the task-force on default loans, loans disbursed by Chattogram banks until Dec 31, 2017 stands at Tk 1,427.57 billion. Tk 254.93 billon of this amount is in default. Tk 59.13 billion were written off and Tk 85.91 billion default loans have court stay orders on them.
Relevant to mention that no products are kept under bank’s jurisdiction for LTR loans while products sourced through Loans against Imported Merchandise (LIM) are stored in Bank’s warehouses. Abuses in both the schemes have been reported for a decade and a half now. LTR and LIM facilities have not been limited to commodity importers. They were also granted for industrial raw materials that later turned to be term loans. Existing regulations stipulates that banks can provide LTR loans for a maximum of 90 days. Failure on the recipient’s part in meeting the deadline is supposed to categorise the loan as default but, most of the banks don’t specify it as such even after failing to recover the credit in due time.
Banks usually grant collateral free LTR loans to ‘credible’ clients to help them import products, where the importers are supposed to pay the bank in instalments as they sell the products.
Statistics show that loans under LTR and TR (Trust Receipt) until March 2017 was over Tk 520 billion that accounts for almost 12 percent of total loans disbursed.
A Bangladesh Bank survey has described the loan amount granted to certain major business groups in Chattogram, tendency to adjust those secured credit, the nature of banking transactions and the reality regarding recipient’s ability to repay against LTR as alarming.
Concerns of the same business group secured LTR facility by opening up local LC’s between themselves. Products were supplied only in black and white simply to maintain documentation for availing loans.
And if that was not enough, they managed to get repayment deadlines of LTRs extended in certain branches so that they don’t become defaulters.
The central bank report named a number of Chattogram-based importers including Elias & Brothers, Imam Group, Mostafa Group, Nurjahan Group, S Alam Group, TK Group, Jasmine Vegetable Oil, Marine Vegetable Oil and SA Oil that are LRT recipients.
Among the Dhaka-based businesses which availed LTR facility include City Group, Madina Group, Thermax Group and Marhaba Spinning. Most of the loans disbursed have turned into bad debts.
The new policy will make mandatory the central bank’s approval for a defaulter to secure loan restructuring. Chattogram-based businesses will get the opportunity for now. The remaining will be brought under the policy eventually.
Private Banks can also choose to offer loan structuring to their clients based on the new policy, although initially chalked out for the state-owned banks.
Loan rescheduling can be availed upon depositing a certain amount. Banks make some cash profit given the rescheduling is done in due process. A general rule for loan restructuring goes like— if there’s collateral against a loan and a certain amount (10 percent of the total credit) is paid, the bank can restructure a debtors loan a maximum of three times. Further rescheduling requires the approval of the central bank.
Amid political unrest in 2013, Bangladesh Bank relaxed prerequisites for loan rescheduling. Rescheduling was made an option based on bank-client relationship upon the central bank’s clearance.
Loss-making entities then got the chance to reschedule loans by making a small down-payment.
Amid pressure from conglomerates, the central bank in 2015 approved a guideline granting the same privilege for businesses with loans over Tk 5 billion.
According to that policy, term loans can be restructured for over a 12-year period while for current loans it’s six years. Interest rates for the restructured loans were also relaxed to be lower than the relevant bank’s specified rate.