Bank-Insurance
BB relaxes IBBL deposits ‘completely safe’
Bangladesh Bank Executive Director and Spokesperson, Md Mezbaul Haque on Sunday, December 4, said that Islami Bank Bangladesh Limited (IBBL) is very important to the state, and the bank’s depositors have nothing to worry about regarding their money which means it is safe completely safe to deposit in Islami Bank Bangladesh Limited (IBBL).
‘Those who have deposited money in this bank are completely safe. Bangladesh Bank guarantees their deposits. But there are many rumors still ongoing. A good institution cannot be hindered by rumor or otherwise,” he said.
Mazbaul said this after a meeting with the Association of Bankers Bangladesh (ABB) at Jahangir Alam Conference Hall of Bangladesh Bank on Sunday afternoon.
Bangladesh Bank fully guarantees customers’ deposits at IBBL. However, there is an ongoing investigation into whether there was any irregularity or corruption at the bank.
“We can say what happened only after investigation,” he added.
Regarding ABB’s claim that the maximum interest rate of 12 percent on consumer loans has been verbally approved, he said: “We have not issued any circular in this regard.” Consumer loan interest rates are the same as in earlier rules. But if a bank talks about 12 percent then it is advance preparation. If so, we will issue a circular.”
In reply to a question on customers withdrawing deposits from Islami Bank, as IBBL is popularly known, he said that the crisis of trust has passed. Depositors are putting money back into the bank.
Besides, the trade deficit has come down a lot, and the foreign exchange crisis will go soon.
The meeting discussed several issues including the facilitation of importers’ letters of credit (LCs) to ensure the supply of essential commodities during the upcoming Ramadan.
“This has been discussed with the MDs and CEOs of the banks. Governor Abdur Rouf Talukder has instructed the MDs to provide all kinds of assistance in the import to ensure the supply of necessities during Ramadan,” Mezbaul said.
He further said that the opening of unnecessary LCs is closed. However, it has been suggested to keep the margin rate at a minimum level in the case of import financing of essential commodities during Ramadan.
On Sunday (May 5), the Bangladesh Bank (BB) once again dissolved the board of directors of the National Bank.
In a letter addressed to the managing director of the National Bank, the central bank announced the cancellation of the existing board of directors.
Furthermore, the banking regulator established a new board of directors and appointed Khalilur Rahman, the bank’s sponsor director, as the new chairman, according to the BB’s communication.
Mezbaul Haque, spokesperson for the Bangladesh Bank, commented on the development, stating that the action was taken to bolster the bank’s board of directors.
This move comes after a similar action in 2023 when the central bank ordered the dissolution of the National Bank’s board and formed a new one.
Prime Bank PLC has recently received Bancassurance Business commencement approval from Bangladesh Bank.
Mohammad Shahriar Siddiqui, director, BRPD, Bangladesh Bank handed over the approval letter to Nazeem A Choudhury, deputy managing director – consumer banking of Prime Bank PLC, at a ceremony held at Bangladesh Bank recently.
Mohammad Ashfaqur Rahman, additional director, BRPD, Bangladesh Bank, Ashraful Alam, joint director, BRPD, Bangladesh Bank, Miah Mohammad Rabiul Hasan, chief bancassurance officer, Prime Bank PLC were also present at the ceremony.
Bancassurance is a partnership between a bank and insurance company that will allow a Bank to sell insurance products of the insurance company through its distribution channels.
To offer a wide range of products to its customers and ensure best in class service, Prime Bank has partnered with leading insurance companies National Life Insurance Company Ltd. and Reliance Insurance Ltd.
Being one of the leading banks of the country, Prime Bank hopes to cater to the needs of insurance requirements of its customers through Bancassurance, in Bangladesh market.
The Bangladesh Bank has finally reinstated its loan classification rule of 2012 by cutting the overdue time of a term loan by three months in line with the international practice in response to the condition set by the International Monetary Fund (IMF) as part of a $4.7 billion loan package.
A term loan will be treated as overdue after three months of non-payment from fixed expiry date for repayment, down from existing six months, according to Bangladesh Bank circular.
Besides, the classification period after the overdue timeframe has been kept unchanged at three months, which means a loan will be treated as default in six months after the fixed expiry date for repayment from existing nine months.
This is the first phase of the new rule which will come into effect from 30 September 2024.
In the second phase, the loan will be treated as overdue from the following day of fixed expiry date of repayment from 31 March 2025, which means the account will come under classification in three months of non-payment.
However, in another circular, the central bank addressed the pressure of rising loan costs, instructing banks not to extend instalment size of borrowers.
Banks have also been asked to extend tenure of industrial term loans and house finance taken before July 2023 to adjust the increased loan costs caused by rising lending rates.
Mustafa K Mujeri, former director general of Bangladesh Institute of Development Studies, welcomed the decision, stating that it would encourage customers to pay in instalments.
“However, the instalment amount should have been left to the bank-customer relationship. It will not work if the central intervenes in all cases. Banks should be given freedom over instalment amount and extension of loan tenure,” he added.
Emranul Huq, managing director and CEO of Dhaka Bank, said banks stand to benefit from reducing loan overdue periods.
“Extending deadlines often leads customers to delay repayments unnecessarily. Shorter loan durations facilitate quicker recovery, reduce Non-Performing Loans (NPLs), and enhance the banking sector’s liquidity,” he added.
The banker supported keeping instalment amounts unchanged, explaining that when arranging instalment payments for term loans, they consider factors such as the customer’s cash flow.
“Despite interest rate increases, our priority is to ensure that instalment payments remain manageable. If handled correctly over time and clients are financially stable, it will benefit the banking sector,” he added.
The lending rate which was capped at 9% before July 2023 surged to 13.55% in April after introducing a new lending rate formula SMART (Six-months Moving Average Rate of Treasury Bills).
Moreover, the new tight loan classification rule that was eased in 2019 is feared by the Bangladesh Bank to increase non-performing loans by around Tk80,000 crore.
The total default loan in the banking industry stood at Tk1.45 lakh crore at the end of December last year which was 9% of total loans.
Changes in loan classification over the years
Earlier in 2012, the central bank adjusted loan rules to meet IMF conditions for a $1 billion ECF program. Loans used to be classified as overdue after nine months, but under the new rules, it was shortened to three months past the repayment date.
However, the Bangladesh Bank started to deviate from the international practice gradually from 2015 through offering a special loan restructuring facility for large loan borrowers with loans above Tk500 crore. Borrowers were allowed to regularise their loans under the one time restructure program with a 12 years repayment facility at only 2% down payment.
Later, in 2019, the Bangladesh Bank eased the classification rule reinstating the provision of a nine months for treating a loan account as classified from fixed expiry repayment date.
In the same year, the central came up with a relaxed loan rescheduling policy allowing defaulters to reschedule their classified loans by making a down payment of only 2% instead of the existing 10%-50%.
However, a series of rules relaxation could not reduce default loans, rather it kept rising.
Default loans in the banking industry increased by Tk52,000 crore in five years from December 2018 to December 2023 even after rescheduling loans of Tk2,12,780 crore during this period under relaxed policies.
The Bangladesh Bank in its financial stability report published in August 2023 disclosed that the banking sector’s distressed assets including default loans, rescheduled loans and written-off loans stood at Tk3.77 lakh crore at the end of 2022.
The total distressed amount was 25.5% of total loans of Tk14.77 lakh crore according to the report.
The Bangladesh Bank for the first time disclosed the distressed assets as part of the conditions agreed with the International Monetary Fund (IMF) for the $4.7 billion loan.
Borrowers will enjoy extended repayment period to adjust rising loan costs
In another circular issued yesterday, the Bangladesh Bank said borrowers’ ability to repay loans has decreased due to higher interest rates on loans taken before July 2023. As a result, loan costs have increased based on SMART.
To address this issue, banks were asked not to increase the instalment size and adjust the increased loan cost through extending repayment tenure.
The increased amount of instalment was instructed to keep separately in a blocked account which will be not charged. Later, the amount will be split in the same size of instalment that was set before 1 July 2023, according to the circular. Such extension of repayment period will not be considered as a rescheduled loan.
Banks can transfer the money from blocked accounts soon after starting recovery, said the circular. The facility will be cancelled if any loan turns to classified despite availing the extended tenure benefit.
Only loans remaining regular based on 1 April 2024 will come under the facility, according to the circular.
