MDs and chief executives of banks want a relaxation of loan dissolution rules to bring down default loan. In addition, they want a full proof one hundred percent provision against bad loans. They proposed this in a proposal to the Bangladesh Bank governor Fazle Kabir, to which the bank has responded favourably, though a final decision will be taken after further assessment.
It is assumed that default loan will fall and one hundred percent provision won’t be needed to dissolve loans. For dissolving loans up to Tk 200,000, cases won’t be lodged.
Such decisions were taken on Nov 7 during a meet between Association of Bankers Bangladesh and officials of Bangladesh Bank. Central bank governor, Fazle Kabir presided.
Economists however do not see the relaxing of dissolution rules as positive. They said that if this was allowed, risks would increase in the banking sector.
Former governor of Bangladesh Bank, Dr Salehuddin Ahmed, said: “The central bank needs to be stricter in recovering default loans; to reduce default loan, good governance is essential.”
In the current system of dissolution, the banks have to wait for three years. This means that even if a loan is written off, efforts must be made for at least three years to recover it.
Banks could however, dissolve a loan after they failed to recover it for five years. Eight months ago, this was reduced to three years by the central bank.
The dissolution of loans involves striking out bad loans from balance sheets. This has been going on since 2003 and as per the last report of the Bangladesh Bank, in June this year, the total default loan was nearly Tk 980 billion.
If the banks could dissolve the loans then they would be able to strike out the whole amount. This means that if the policy is implemented, default loan will stand at nearly Tk 147 billion. At the end of June, total dissolved loan was Tk 404 billion.