Restructuring loan arrangements for 300 businesses elicits varying responses from banking professionals and economists
The Bangladesh Bank has recently approved a loan rescheduling facility for around 300 companies, a move that has drawn mixed reactions from bankers and economists. Arief Hossain Khan, executive director and spokesperson of the Bangladesh Bank, stated that the decision was made after a thorough review by a committee.
The central bank's decision comes amidst a serious problem with bad loans and loan defaults in the financial sector of Bangladesh, with bad loans surpassing Tk 200,000 crore and increasing levels of non-performing loans (NPLs) [1]. Some of these companies are large corporate defaulters in Bangladesh.
Under the new facility, firms may be allowed to extend repayments for up to 15 years, and a low down payment and grace periods of up to three years are part of the plan. The central bank grants permission for loan rescheduling based on audit firm reports.
However, Muhammad A (Rumee) Ali, former deputy governor of the Bangladesh Bank, expressed scepticism about the loan rescheduling, stating that he does not foresee a positive outcome if the same methods as in the past are used. Ali believes that all unencumbered businesses and personal wealth of the borrower should be used as collateral, and he suggests increasing security and seeking a greater contribution from borrowers in the loan rescheduling process [2].
Ali's concerns are echoed by Mujeri, who warns that while loan rescheduling might reduce the number of non-performing loans on paper, the real situation would remain unchanged. Mujeri emphasises that loan rescheduling must have an honest purpose and should not be a blanket policy. The banks must use their power to reschedule loans with integrity [3].
There is no explicit information from the search results indicating that Bangladesh Bank has conducted a forensic analysis specifically on the effectiveness of previous loan rescheduling in promoting successful loan repayment. However, the Bangladesh Bank has carried out forensic investigations to detect fraud and irregularities in loans, such as revealing the true beneficiaries behind large loan irregularities involving S Alam Group [1].
Many agree that rising dollar value and increasing interest rates have contributed to companies defaulting. Rescheduling could potentially hurt banks' cash flow, as recovery might take longer. The central bank wants to give a chance to defaulters to regularise their loans before taking a stricter stance [4].
In conclusion, while the loan rescheduling facility has been approved by the Bangladesh Bank, concerns remain about its effectiveness and the potential risks involved. The central bank's decision comes amidst a significant challenge posed by default loans and systemic irregularities in the financial sector.
References:
- Bangladesh Bank probes loan irregularities involving S Alam Group
- Bangladesh Bank governor expresses concerns about banking sector’s recovery
- Bangladesh Bank approves loan rescheduling for 300 companies
- Bangladesh Bank grants permission for loan rescheduling based on audit firm reports
The loan rescheduling facility granted by the Bangladesh Bank involves extending repayments for up to 15 years and offering grace periods, aiming to help struggling businesses in the financial sector. However, concerns persist about the effectiveness of this measure, with many, including Muhammad A (Rumee) Ali and Mujeri, advocating for greater contributions from borrowers and cautioning against using it as a blanket policy.
