Central bank likely to consider term loan moratorium extension proposal

The central bank will look into the bank owners' proposal seeking a three-year extension of paying term loan instalments, says the association of banks.  

After a meeting with Governor of the Bangladesh Bank Fazle Kabir on Monday, Bangladesh Association of Banks Chairman Md Nazrul Islam Mazumder told The Business Standard the governor, the deputy governor, and other high officials of the central bank had looked into the proposal.     

"They assured us that our demands would be scrutinised. The central bank has realised the importance of our demands," he said.

The bank association sought the extension in a letter to the governor of the central bank on 4 February. 

It expressed frustration over the lack of guidelines from the central bank on continuous or demand loans, saying these account for 65-70% of total loans.

Businesses slowed down due to the coronavirus pandemic and have not picked up yet. Moreover, export remains sluggish due to the second wave of the pandemic.

Fearing that most traders might default in this situation, the association of banks demanded that the part of the continuous loans not repaid yet be considered term loans and repayment through rescheduling be allowed for three years.

Nazrul said they had demanded that instalment payments be relaxed further so that the move would not hurt banks and clients would not face any pressure either.

He said banks last year had not received that many instalment payments.

"Debt classification is resuming in January. Many clients will not be able to pay instalments as the situation is not normal yet. If they default again, they will not get loan facilities.

"In that case, it will not be possible for business owners to recover the pandemic-induced losses. That is why we have demanded that a simple rule be made," he explained.

But managing directors of banks are not in favour of the extension. At a recent meeting with the governor of the central bank, they expressed their opinion against it but agreed to start loan classification.

In this regard, Nazrul said it is not true that bankers do not want to increase facilities.

"But what will they do if they do not get money from clients? We want an easy policy. Managing directors of banks perhaps do not say it because they operate under a regulatory body," he said.  

Extending the instalment payment time will not affect banks' profits, said Nazrul. He is optimistic that the situation may change by the end of this year.

To recoup the pandemic-induced losses, the Bangladesh Bank provided the facility of not paying instalments and keeping loan classification closed throughout last year.

This did not cause the amount of default loans to increase. Rather, at the end of September last year, such loans came down to 8.8% of total loans.

In a circular on 31 January, the Bangladesh Bank asked banks to start loan classification this year and cancelled the facility of non-payment of instalments of loans other than term loans.

In case of payment of term loan instalments, the central bank allowed two more years.

But the bank association demanded the three-year extension for short-term loans.