THE Central Bank is set to get on a two-step programme to ensure that the loan situations of the large borrowers do not go out of hand. Notable, the overall scenario in the banks is nothing but volatile. The central bank’s decision comes out at a board meeting recently after analysing large loan portfolios. The large borrowers have become a threat to the health of most banks. The central bank found that 23 commercial banks would be in a precarious situation if their top three borrowers defaulted. Subsequently, that may decline the capital adequacy ratio by 2.69 percent while below 10 percent is considered critical.
According to media report many of the large borrowers have been lobbying for long-term restructuring of their loans and the banks too are in favour of the move, as it prevents their default loan portfolio from ballooning. It is true that many of the large borrowers have been affected by the global recession and the internal political instability, although, many have taken irregular facilities. Bangladesh Bank said that one state-owned commercial bank, 18 private commercial banks and four Islamic banks have formed a brand new repayment package that suggested that instead of simply extending the loans’ maturity period banks re-schedule loans after analysing the borrower’s assets and liabilities as well as the health of his/her businesses.
Though the economy has been growing at a steady pace of around 6 percent per year, a healthy and stable banking sector is critical— and the loan servicing capabilities of the large borrowers are central to that. Many of the large borrowers happen to be the largest borrowers of a number of banks. Instead of each bank extending restructuring facilities to the borrowers separately, experts suggested that the banks should get together and jointly analyse the loan portfolio to propose a suitable restructured package. Restructuring must be offered in such a way that it not only ensures loan recovery but also prevents repetition of the scenario.
As of September, the sector’s top 20 borrowers account for around Tk 43,000 crore, which was 8.7 percent of the total loans then. Only five borrowers account for 60 percent of the loans and at the end of September, the total defaults stood at Tk 57,290 crore, which is 11.60 percent of the total outstanding loans, revealed the central bank statistics.
In a market economy, unforeseen circumstances can adversely affect the business of borrowers and in extreme circumstances bank loan restructuring might become necessary to set businesses on a viable path. Though, the central bank is aware about loan-defalcation by the large borrowers, people fear that the defaulters could drain off public deposits that in turn may bring devastation in the embattled economy and especially the corruption-ridden banking sector.
A well-defined loan restructuring policy can be the last resort to free banks from loan embezzlement, but the central bank should be vigilant so that the defaulters don’t take advantage of the opportunity to launder money. Sanctioning loans from banks should be based on assets and liabilities and not due to political affiliation and the action against defaulters should not be affected by signals of political high-ups.
