Term-loan borrowers to get breathing space

FE Report | Published: April 23, 2019 09:25:36 | Updated: April 24, 2019 10:34:00

Picture used for illustrative purpose only — Collected

The central bank has revised loan classification rules to treat unpaid instalment(s) of a term loan 'overdue' after six months of its (loan) 'expiry' date.

The relaxation, officials said, has been done to facilitate business activities.

"If any installment(s) or part of installment(s) of a fixed-term loan is not repaid within the fixed expiry date, the amount of unpaid installment(s) will be treated as past due/overdue after six months of the expiry date," the Bangladesh Bank (BB) said in a notification on Sunday.

The loans, which are repayable within a specific time period under a specific repayment schedule, will be treated as fixed-term loans.

The revised loan classification rules will come into effect from June 30 next.

The central bank, earlier in a circular, issued on September 23, 2012, said if any installment(s) or part of installment(s) of a fixed-term loan is not repaid within the fixed expiry date, the amount of unpaid installment(s) will be treated as past due/overdue from the following day of the expiry date.

"We've relaxed the previous rules, considering both business environment and economic cycle of Bangladesh," a BB senior official told the FE while explaining the main objectives of the latest notification.

He also said the term-loan borrowers will get six months as grace period for calculation of their classified loans.

The BB has also extended three months' time for two types of classified loans - 'doubtful' and 'bad' - to facilitate business activities.

With the revision, the loans overdue for three, nine and 12 months will be considered as 'sub-standard', 'doubtful' and 'bad' respectively, effective from June 30, according to the notification.

The loans will be treated as 'doubtful' after non-payment for nine months, and 'bad' after 12 months, while categorising 'sub-standard' will remain unchanged at three months.

As per the existing rules, loans overdue for three, six and nine months are classified as 'sub-standard', 'doubtful' and 'bad' respectively.

These revised rules will be applicable for continuous loans, demand loans and fixed-term loans.

The loan accounts in which transactions may be made within certain limit and have an expiry date for full adjustment will be treated as continuous loans, like - cash credit, overdraft, etc.

The loans that become repayable on demand by the banks will be treated as demand loans.

If any contingent or any other liabilities are turned to forced loan (i.e. without any prior approval as regular loan), those too will be treated as demand loans, like - forced loan against imported merchandise, payment against document, purchased foreign bill, and purchased inland bill, etc.

Khondokar Ibrahim Khaled, former deputy governor of the central bank, welcomed the new directives, saying businesses are not given too much additional facilities in this case.

The finance minister earlier said loan restructuring facility for a twelve-year period will be offered, he also said.

"If the minister has shifted himself from that stance and offered a three-month additional time for classification, I think the move is not bad."

After granting a three-month extension, the central bank should constantly monitor whether or not the banks are properly complying with the provision, Mr Khaled told the FE.

If in addition to the three-month extension the twelve-year loan restructuring facility is granted, it will be an "obsolete disaster", he added.

Talking to the FE, former BB governor Salehuddin Ahmed said the revised rules will not be able to bring any substantial impact on the banking sector.

"Such revisions will affect 'credit culture' in Bangladesh," the former BB governor noted.

Syed Mahbubur Rahman, Chairman of the Association of Bankers, Bangladesh (ABB), said such measures will help reducing the amount of non-performing loans (NPLs) but it will delay loan repayment, particularly from term-loan borrowers. This might impact, to some extent, the liquidity situation.

"We expect that profitability of banks will improve following such rules," the senior banker noted.



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