The central bank has finalised a draft policy for restructuring loan defaults, allowing providing big loan defaulters to pay off their debts.
Bangladesh Bank is expected to issue the official by next month.
The new policy, which is set to be effective from May 1, says defaulted loans can be renewed with a down payment of 2% of the total loan, giving 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 business groups which restructured their loan defaults in 2015.
According to Bangladesh Bank sources, the business groups were granted a huge discount in 2015 by loan restructuring. With only a 1 or 2% down payment, loan defaults worth Tk 150 billion were renewed.
According to the central bank’s rules, a down payment of 15% of the total loan is required for a renewal, which is a one-time opportunity.
But as the 11 conglomerates did not pay the loan installments on time, interest on the loans increased to about Tk 270 billion.
Some of these groups are taking out fresh loans upon obtaining a stay order from the High Court.
In the new draft policy, the 11 business 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 Bangladesh Bank official said.
Experts, however, have doubts on the new scheme’s effectiveness.
According to former governor Salehuddin Ahmed, cross-checking and ensuring international standards were imperative before any decision.
Describing the proposed scheme as ‘absolutely meaningless’, former caretaker administration adviser AB Mirza Azizul Islam said it would only increase defaulted loans.
On Mar 25, after a meeting at his Shere Bangla Nagar office, Finance Minister AHM Mustafa Kamal unveiled the new plan before the media, when he said only those with “adequate justification” 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 Tk 1 trillion – the largest yet in the history of Bangladesh.