Amendment to bank company act likely to reduce default loans

Finance Minister AHM Mustafa Kamal is planning to reduce default loans by amending the bank company act as part of the government's move to reform the financial sector.

"Default is always a concerning issue, and we all agreed to get relief from it through legal process by bringing changes to the bank company act," he said.

He made the disclosure at a press conference held at the National Economic Council auditorium in the city on Tuesday, after a meeting with the managing directors and the chairmen of four state-owned banks – Sonali, Janata, Agrani and Rupali.

He said they will bring some changes to the Bank Company Act (Amended)-2017 so that loans can be adequately covered in the form of mortgage.

Apart from that, all directors of borrowing firms will have to give personal guarantees against loans, he added.

"The way of taking guarantee will be as so strong that it will be easy to take action if a borrower fails to service debt," the minister said.

"We observed that action could not be taken against most of defaulters due to weaknesses in the relevant law," Mustafa Kamal said.

Currently, default loan is governed through a loan classification circular by Bangladesh Bank. There is no act to manage defaulters.

In April, following the finance minister's instruction, Bangladesh Bank, on an aim to reduce default loans, eased the loan classification rules by extending classification tenure backtracking from international standard.

In another move for the same reason, the central bank issued a new loan rescheduling policy allowing defaulters to regularise loan for 10 years at discounted two percent down payment instead of regular 10 to 15 percent.

The one-time special rescheduling package was issued in May this year.

Despite all policy advantages given to defaulters, default loans continued rising to stand at Tk1,12,425 crore in June.

Amid this situation, Finance Minister AHM Mustafa Kamal is now moving to control default loans by amending the bank company act.

Earlier in January last year, the government amended the act by increasing the tenure of board directors to nine years from six years.

At the same time, the new amendment increased family grip in the bank's board, allowing four members of a single family to be in the board, up from two earlier.

At the meeting, the minister asked the four state-owned banks to submit a unified business plan to improve their health.

In August, Mustafa Kamal announced that these four banks will not be given further capital support and also asked them to submit an action plan to improve their health.

As development of that instruction, the finance minister sat with four banks to discuss their action plan.

At the meeting, all brought separate action plans. But the minister did not accept those, asking them to bring a unified business plan, according to a meeting source.

After the meeting, Minister Mustafa Kamal told journalists that profit and revenue generation are the major issues for the state banks.

"Banks have set their profit target, and we will see the development in the next three months," he said.

All chairmen, managing directors and chief financial officers of four state-owned banks were present at the meeting.