Bank-Insurance
Expert says Large defaulted loans have distressed domestic economy
Bangladesh Bank (BB) has meticulously compiled and released a comprehensive dataset of various categories of defaulted loans, aligning with the guidelines set by the International Monetary Fund (IMF). Esteemed economists have lauded this move, asserting that the report presents an authentic snapshot of the nation’s ailing domestic economy. The report not only offers transparency about the banking sector’s genuine state but also equips investors and depositors with essential insights for their future decisions.
The BB’s Financial Stability Report for the year 2022, unveiled recently, discloses that the banking sector grappled with a total of Tk 3.78 lakh crore in risky loans throughout the preceding year. This sum is calculated by combining non-performing loans (NPLs), outstanding rescheduled loans, and outstanding restructured written-off loans.
As of the close of 2022, the banking sector’s NPLs reached Tk 120,649 crore, outstanding rescheduled loans amounted to Tk 212,780 crore, and outstanding written-off loans accounted for Tk 44,493 crore. These loans, as defined by the International Monetary Fund, are categorized as non-performing loans. The publication of this report was necessitated by the IMF’s requirement, as it forms a condition for the approval of Bangladesh’s $4.7 billion loan.
To gain the IMF’s approval for the loan, Bangladesh must reduce its non-performing loans to a level of 10 percent. The IMF’s preference encompasses the rescheduling of loans and treating court-suspended loans as defaulted.
Professor Mustafizur Rahman, a Distinguished Fellow of the Centre for Policy Dialogue (CPD), emphasized the significant burden the substantial volume of non-performing loans exerts on the domestic economy. He emphasized that a substantial amount of money is immobilized in unproductive sectors, creating substantial strain. He noted that if banks received timely repayment of loan funds, they could invest more extensively in new entrepreneurs and small to medium-sized industries, which are currently grappling for funds.
Ahsan H. Mansoor, the Executive Director of the Policy Research Institute (PRI) and a former economist at the IMF, affirmed that rescheduled loans should indeed be considered defaulted loans, in accordance with the IMF’s stance. Should these rescheduled loans be treated as defaults, the default rate within the banking sector would elevate to 25 percent, a figure starkly contrasting the IMF’s recommended 10 percent threshold.
The report indicates that the rescheduled loans for 2022 amounted to Tk 63,719 crore, a sharp rise from Tk 26,810 crore in 2021 and Tk 19,810 crore in 2020. The bulk of rescheduled loans for the year 2022, around 71 percent, were attributed to private sector banks, with public sector banks contributing 24 percent.
Moreover, the BB’s report revealed that Tk 65,321 crore of debt had been written off from the financial report for 2022, surpassing the Tk 60,498 crore written off in 2021. Adding to the complexity, approximately Tk 1.0 lakh crore remains entangled in pending court cases, further exacerbating the prevailing economic challenges.
In light of the current situation, Bangladesh Bank has mandated that all banks and financial institutions refrain from charging additional fees for late payments of credit card bills and loan installments.
The central bank issued this directive through two separate notifications on Wednesday, providing a significant relief measure to the financially burdened.
Borrowers and credit card holders who were required to make payments during the curfew and public holidays now have until July 31 to settle their dues. Bangladesh Bank has explicitly stated that banks and financial institutions are prohibited from imposing any extra interest, penalties, or late fees for installments or credit card bills due between July 18 and 25. Furthermore, no savings schemes shall be canceled for non-payment of installments during this period.
The central bank’s notification acknowledges that many borrowers and credit card users have struggled to meet their payment deadlines due to the prevailing circumstances.
Additionally, numerous depositors have been unable to make timely deposits into various savings schemes, including the Deposit Pension Scheme (DPS). To address these challenges, the new guidelines will be in effect from July 18 to 25, covering dues on loans, credit card bills, and savings scheme installments.
According to the directive, if the outstanding loan and credit card payments are settled by July 31, any accrued interest, penalty interest, additional interest, excess profit, or late fees will be waived. Similarly, if savings scheme installments are paid by July 31, no late fees or penalties will be imposed.
Moreover, any interest, penalty, or late fee already collected on loans, credit cards, or savings schemes must be refunded or adjusted, as per the Bangladesh Bank directive.
The Bangladesh Bank (BB) has announced an extension for the payment period against imports of industrial raw materials from 180 to 360 days, a measure now set to remain in place until December 2024. This policy, initially scheduled to end in June of this year, has been prolonged to facilitate trade transactions, according to a BB circular issued today.
“To support trade transactions, it has been decided to extend the policy support until December 31, 2024. The extended usance period will not apply to imports under EDF loans, as previously stipulated. All other relevant instructions remain unchanged,” the circular stated.
To ensure timely payment of salaries and bonuses to garment industry workers before Eid-ul-Azha, the branches of banks in key industrial areas will remain open on a limited basis on June 14, 15, and 16.
The Bangladesh Bank (BB) issued a notification stating that bank branches in Dhaka metropolitan, Ashulia, Tongi, Gazipur, Savar, Bhaluka, and Narayanganj will operate on these days to facilitate financial transactions for garment sector employees.
Typically, Friday and Saturday (June 14 and 15) are weekly holidays, and Sunday (June 16) will be closed for Eid. Despite these closures, the BB has mandated that banks in industrial regions stay open to manage the disbursement of wages and bonuses and facilitate the sale of export bills.
Additionally, bank branches in Chattogram metropolitan and industrial areas will also be open to support garment workers’ payments and the processing of export bills.
The BB has instructed banks to coordinate with local authorities to ensure adequate security at the branches during this period.
Eid-ul-Azha, one of the most significant religious festivals for Muslims, will be celebrated in Bangladesh on June 17.
