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Bank & Finance - June 26, 2023

Default loans in trap of rescheduling formula

Over Tk 2.0 tr bad debt hide in 10-yrs

Zarif Mahmud: Rescheduling of bank loans is not stopping. In the first 3 months of this year, over Tk 3,000 crores of defaulted loans have been rescheduled. This information has come up in the latest report of Bangladesh Bank.
But rescheduling means hiding the true picture of defaulted loans. A kind of concession is being given to borrowers by trapping them in this formula.
According to concerned economists and experts, debt rescheduling is one of the few tools available to reduce defaulted loans. Although temporary defaulted loans are less, in the long term these loans are not seen to be very good. Gradually these rescheduled loans turn into defaults again.
They say that due to giving concessions one after the other without taking strict measures to recover the loans, defaulted loans are practically not being reined in.
According to the report of Bangladesh Bank, during January-March 2023, defaulted loans of Tk 3,377 crore were rescheduled. Against this, the banks have waived interest of Tk 58.23 crore.
At this time of dollar crisis, one of the conditions of the government borrowing from the IMF is to reduce defaulted loans. However, Bangladesh Bank is trying to reduce non-performing loans by relaxing the conditions of rescheduling instead of strictness in collection. Such initiatives have been taken at various times before. Although some debts were collected temporarily, the tendency of defaulting later increased.
In the light of Bangladesh Bank’s policies, banks can reschedule defaulted loans long ago. However, the new policy was issued on July 18 last year by relaxing the conditions. The new policy reduces the down payment rate from 2.5 to 3 percent of the arrears. Earlier 10 to 30 percent down payment or one time deposit was required. Earlier a loan could be rescheduled for a maximum of 3 years at a time. Now loans above Tk 500 crore can be rescheduled for the first two tranches from 8 years to 16 years, the third tranche for 7 years and the fourth tranche for 6 years.
Thus, the condition of depositing ‘compromise amount’ in case of fresh loan after rescheduling has also been relaxed.
According to the report of Bangladesh Bank, in the last 3 months of 2022, most loans have been rescheduled in the light of the new policies of the central bank. Tk 17,768 crore was rescheduled during October-December. Against this, the banks have waived interest of Tk 1,898 crores.
Tk 5,551 crores were rescheduled in the previous 3 months, against which the amount of interest waiver was Tk 351 crores. And during October-December 2021, Tk 6,976 crores were rescheduled. Against this, the interest waived is Tk 1051 crores.
No borrower defaulted in 2020 due to Corona. Despite paying 15 percent of the amount to be paid in 2021, it has remained in default. Last year there was no default after paying 50 percent of installments.
If you pay half of the installment this year too, there will be no default. However, earlier in 2019, the loan was rescheduled for 12 years with only 2 percent down payment. That year more than Tk 52,000 crores of loans were rescheduled. Prior to that, special facilities are restructured or rescheduled. In the last 10 years, more than Tk 2 lakh 23 thousand crore loans have been regularized.
The former chief economist of the World Bank’s Dhaka office Zahid Hossain told Daily Industry that relaxation was shown year after year to reduce defaulted loans. It didn’t work. A few days ago, the debtors were exempted. Those who have availed loan rescheduling or restructuring facility in the past have defaulted again in most cases later. So now is the time to get tough. Now is the time to tighten because of the IMF loan program.
Because they have passed the amended Bank Company Act and the new tax law within the current year and have given conditions for implementation from next year. He said, that law is being passed or will be. Whether this act of structural change further weakened the banking sector has to be considered.
Bangladesh has received the first tranche of the IMF’s $4.7 billion loan to overcome the dollar crisis. Remaining amount will be released in 6 more installments. The company will waive the loan after fulfilling various conditions at each stage. One of the conditions of the IMF loan is to reduce the non-performing loans of state-owned banks below 10 percent and private banks below 5 percent.

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