Rescheduling - the name of the game  

Shamsul Huq Zahid   | Published: December 02, 2018 21:58:54

Global credit rating agency Moody's put the banking system of Bangladesh on negative list. This comes in contrast to the country's robust economic health.

The worsening asset quality has led the agency to rate the Bangladeshi banks negatively. It blamed the underlying weaknesses in corporate governance, particularly in the state-owned banks, for accumulation of substantial volume of non-performing loans.

The ratio of non-performing loans (NPLs) was 10.5 per cent as of June last. That ratio is for all scheduled banks-public, private and foreign. However, according to their ownership pattern, the ratio varies. In the case of state-owned banks, it is over 28 per cent and private banks over 5.0 per cent.

However, the figures do not depict the real picture about classified loans belonging to banks. A substantial volume of NPL remains hidden under the tags 'rescheduled' and 'written off'.

The Moody's report did also take note of the rescheduled loans. It said the growing stock of unclassified loans poses further 'risk' to asset quality.

'Rescheduling' is now a frequently-used (or abused) facility in the banking arena in Bangladesh. Delinquent or hardened defaulters tend to use it most often.

The banks, too, are found to be lenient in offering rescheduling facilities to their clients, even to rogue ones. For defaulting borrowers, rescheduling has become a handy tool to evade legal actions and for banks a mechanism to window-dress their not-so-healthy balance-sheets.

During the polls time, local or national, loan rescheduling turns out to be the most-sought-after facility by the defaulting borrowers who want to be candidates in elections. Banks take a soft approach to a few of this type of borrowers. While some others having strong political connections do manage the facility by exerting pressure either on the banks concerned or on the central bank.

Recently, the issue of granting rescheduling facility to a ruling party stalwart for more than allowable frequency was taken to the higher court. Though a borrower can be offered the rescheduling facility to a maximum of three times, the politician in question, allegedly, managed it on nine occasions.

The banks under the garb of 'bank-client' relationship tend to breach the rescheduling rules and the central bank, deliberately or otherwise, overlooks the matter.

When it comes to national polls, the breach of rules becomes more evident. Prospective candidates, who are loan defaulters, make a long queue in banks to get loan rescheduling facility.

However, some defaulters, who enjoy blessings of powerful quarters, can manage highly undue concessions in the form of loan restructuring during both normal and poll times.

Loan restructuring is a normal facility offered to borrowers who default on loan repayment for genuine reasons. However, abnormal things do happen in Bangladesh. Banking sector is no exception.

There are apparently three types of loan- rescheduling. They are normal rescheduling, abnormal rescheduling and super-abnormal rescheduling. The first two types have already been explained. But some banks, the state-owned ones in particular, are now offering super-abnormal rescheduling facility to some selected borrowers under so-called large loan restructuring scheme.  This scheme, which had in fact gone awry after one year of its launch in 2015, has now, reportedly, come into play for one very privileged borrower. The delinquent borrower had also defaulted on instalment payments. The state-owned bank concerned instead of suing the defaulter concerned as per the terms of the large loan restructuring facility, has extended a few inconceivable concessions to him. Rescheduling does always come following down payment. Here the lucky defaulter got the facility under what the bank terms as 'review of restructured loans'. Not only that, the bank also extended the little known 'balloon payment' facility to the loan defaulter!

All these unusual concessions have been vetted by the central bank. The reason could be anybody's guess.

When the large loan restructuring facility was put into place following strong lobbying by certain business quarters, it was viewed as the defaulters' last chance to stay afloat. But it now seems that the defaulters have a few more tricks up their sleeves.

There is no denying that the rising soured assets in the country's banking sector are the outcome of the poor state of its corporate governance.

Bankers, including a few from the central bank, do very often talk about improving governance in the banking sector. But how can one expect improvement with this kind of favour distribution to loan defaulters by banks with the sector regulator approving the same?

Unfortunately, improved governance is likely to elude the banking industry like many other sectors of the national life. The situation might even worsen in coming days. All would, however, depend on the attitude of the people who would be administering the country.


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