BB cuts down-payment requirement to 1.0pc

Current 2.0-percent mandatory down payment to get default loans regularised has been halved in a latest government measure to stem non-performing loan (NPL) buildup in Bangladesh's banking sector.

Bangladesh Bank (BB) Sunday issued a notification to this effect further easing the loan-rescheduling facility for the struggling borrowers under the policy supports.

The banking regulation and policy department of the central bank sent in the instructions to the commercial banks, directing them to allow half of the 2.0 per cent of the outstanding loans as down payment. And the remaining portion of the down payment may be collected within the next six months.

Under the existing regulation of the loan-rescheduling facility, the borrowers need to pay 2.0 per cent of their unpaid loans as down payment to avail of the facility. But the borrowers will not be allowed to show a paid loan installment or its part before submission of the application as special down payment.

Seeking anonymity, a BB official has said there are many banks which informed them that many borrowers who received policy supports have faced difficulties in paying 2.0-percent down payment in one go. As a matter of fact, the banks kept requesting them to relax the regulation.

"Considering their request, the central bank issued the instruction to the commercial lenders about the latest change in the down payment to facilitate the proceeding," he told The Financial Express.

The central banker also informed that they also extended the timeframe of executing the policy-support-related issues by three more months until March next.

On condition of not being quoted by name on the sensitive affairs, the managing director and chief executive officer of a private commercial bank said they had provided policy support to a group of classified borrowers under the BB-introduced policy-support mechanism under the BRPD circular-7.

But many of them cannot afford to pay 2.0 per cent of their outstanding loans as down payment in one go and the situation remains same to other commercial banks, according to him.

"So, we could not settle them (the borrowers). That's why the BB came up with such relaxation. This is a good move. Now we will be able to execute the loan-rescheduling facility," the seasoned banker said.

The BB allowed commercial banks to offer special rescheduling facility for up to 10 years with a two-year grace period to borrowers whose loans are classified as of December 2025, under a generous government bailout package, according to the banking regulators' policy-support-related circular.

Meanwhile, burgeoning NPLs stand as a serious concerns for the banking industry as the volume of classified loans accumulated to Tk 6.44 trillion by end of September last year-almost 36 per cent of the entire loans disbursed.

Amid growing NPLs, the central bank provided various facilities like policy supports to the struggling borrowers and partial write-off facility. The banking regulator keeps advising the banks to properly use the facilities to contain the growth of NPLs in the industry.

According to the BB sources, the NPL ratio was brought down to 30 per cent by end of December last. Now, the BB has asked the commercial banks to pay high focus on execution of the available facilities to cut it down below 25 per cent by upcoming March and it believes the down-payment-relaxation will help get to the goal.

Former lead economist of World Bank's Dhaka Office Dr Zahid Hossain says down payment is a pre-commitment of the borrowers to recovering the loss of credibility.

He terms 2.0-percent down payment very generous to begin with. "If you don't have this economic viability, how we can believe that they will repay the loans," he says.

"I also don't understand why the bankers are happy with such relaxation. It is good news for the default borrowers," the economist adds.

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