Bangladesh Bank introduces “Exit Policy” for expediting default loan recovery

Bangladesh Bank has formulated a new "Exit Policy" aimed at expediting the recovery of defaulted loans. This policy allows both defaulters and non-defaulting business customers to settle their industrial loans by paying off the balance, with specific conditions attached.

According to the central bank's new notification, applicants must deposit at least 10 percent of the loan amount upfront to qualify for this facility. Banks have been instructed to develop their own policies in line with the central bank's guidelines, incorporating similar conditions.

Under the policy, there will be no change in the quality of the loan until it is fully repaid, and customers utilizing the exit facility will not be eligible for new loans during this period.

"If a businessperson takes this facility, they must repay the entire loan within a maximum of three years. These customers will not be identified as willful defaulters," the notification stated.

The central bank noted that borrowers' businesses or projects might incur losses due to uncontrollable factors, leading to hindered debt collection activities and insufficient cash flow for loan repayment. Consequently, such loans are classified as defaults but not as willful defaults.

The notification also emphasised that genuine adverse financial conditions can reduce the chances of debt recovery. Therefore, there is a need for a uniform policy to facilitate debt recovery or adjustment through the exit mechanism, as banks have been following varied procedures.

In this context, the new policy aims to maintain liquidity flow and reduce defaulted loans in the banking sector. Regular loan exit facilities may be granted for recovering adversely classified loans with poor recovery prospects or in cases where projects or businesses have closed due to uncontrollable reasons.

To apply for the facility, borrowers must pay a minimum of 10 percent of the existing loan balance in one-time cash. Banks are required to settle these applications within 60 working days of receipt.