WHAT seems like an endeavour to support and encourage damage control for businesses suffering from last year’s political backlash, banks in Bangladesh rescheduled and thus regularised Tk 18,552 crore until June under relaxed loan rescheduling rules (that were introduced in December last year). Eight state-owned and specialised banks accounted for almost half of the amount or Tk 9,174 crore which aimed at helping the businesses cover their losses and pay back the banks. According to central bank statistics, even though many banks took advantage of the relaxed rules, their classified loans rose during the period which experts fear may adversely affect the banking system of the country. Under the regularising and scheduling scheme, businesses were allowed to reschedule their loans by fixing their down payment and time limit for repayment, and restructure loans by setting up a rational repayment period. Banks had to obtain a no-objection certificate (NOC) from the central bank before the rescheduling facility became effective. A central bank official clarified that unfortunately many of the loan rescheduling proposals were rejected. An example would be Janata Bank’s efforts of sending proposals to reschedule loans worth Tk 4,487 crore under the relaxed policy, ending up with only regularising Tk 2,057 crore.
According to reports the central bank has been scrutinising the proposals carefully and even opened a cell at its headquarters to monitor the loans. The Bangladesh Bank (BB) stated that Rupali rescheduled the highest amount of loans worth Tk 3,137 crore, followed by Agrani Bank’s Tk 2,062 crore. Statistical data however showed that the banks’ classified loans increased by 1.82 percentage points to 10.75 percent of their outstanding loans on June 30. Even though the classified loan situation improved slightly during the scheme’s initiation in December, non-performing loans in banks fell 28.45 percent during the period last year, according to a central bank study.
While this seems like a sound move to improve the economic condition of the firms suffering from last year’s political instability, this is merely a band aid solution to the problems being faced by the banks regularizing loans for clients. As the bad loans will eventually pile up, the central and other state run banks will suffer a bigger blow to their revenue and resources when the bad debtors are not able to keep their end of the bargain and cough up the crores loaned to them. The state run banks must be wary and prepare to equip themselves for future issues related to bank loans.
