Loan repayment relaxed for borrowers

Traders whose loans were not classified till April this year will not be considered defaulters if they repay 50% of the required repayment instalments by the end of the current month, according to a circular issued by the Bangladesh Bank on Tuesday.

Recipients of short-term agricultural and micro-loans will also get the benefit.

The Bangladesh Bank said in the circular that the traders have been given the loan repayment facilities to maintain the country's economic activity dynamics by running all the businesses, including the ones in the manufacturing and service sectors.

The central bank initiative aims to assist the traders who are facing difficulties in paying the entire portion of their instalments due to the hike in raw material prices in the international market, and transportation costs, resulting from the prolonged war situations in foreign countries, said the circular.

Syed Mahbubur Rahman, managing director and CEO of the Mutual Trust Bank, said, "The banks are already suffering due to a liquidity crisis. It will be difficult for them to make new investments if they do not receive loan repayments on time.

"Moreover, without receiving loan repayments, the banks face difficulties to maintain the customers' fixed deposit accounts. Besides, the central bank has prohibited charging any additional amount for the time period the loan payments are relaxed, which will create a problem in managing liquidity at the banks."

On condition of anonymity, the managing director of a private bank told TBS, "Banks that were prime lenders are currently surviving by taking loans from others. It is unreasonable to relax the loan repayment rules in this situation.

"For the past three years, businessmen had been receiving huge loan moratorium facilities. If giving facilities to traders in this way continues, the banks will not be able to overcome the liquidity crisis."

Another businessman said, "Good borrowers should be given more facilities in repaying loans, but this kind of benefits are given to bad loan takers, which I think is unethical."

"The latest facility has been given till the end of June, which is likely to be gradually extended to December this year. This is done so that the traders can get clearance from the Credit Information Bureau ahead of the upcoming election," he added.

According to a central bank report, excess liquidity in the banking sector was around Tk1.36 lakh crore at the end of January this year, down from Tk1.69 lakh crore at the end of November 2022.

Businessmen who could not repay any loans in 2020 due to the Covid-19 pandemic were not considered defaulters. Then in 2021, borrowing traders could avoid being defaulters by repaying only 15% of the instalment.

In 2022, traders were given a facility to avoid classification of their loans by paying 75% of the required instalments till September that year. Later, the required amount of loan repayment was reduced to 50% in response to demands of the Federation of Bangladesh Chambers of Commerce and Industry, and the Bangladesh Garment Manufacturers and Exporters Association.

In January this year, special waivers on all types of loans were removed, but in view of the demands of traders, the central bank has again given special concessions till 30 June.

According to the central bank's latest instruction, the waived amount of loan repayment must be paid within three months after the end of the loan term, and no penalty interest or additional fee can be imposed for the extended period.

Islamic Shariah-based banks can provide the above mentioned benefits to customers in respect of their given investments.

After all types of loan repayment facilities were lifted in January this year, the amount of defaulted loans increased massively in three months.

According to the central bank, the amount of defaulted loans increased by Tk10,964 crore to reach around Tk1.31 lakh crore in the three months from January to March this year.