BB governor asks banks to opt for loan restructuring, partial write-off to tackle record NPLs
Two-year grace period and just 1-2% down payment is unsafe for long-term restructuring, say bankers
As the true scale of long-hidden non-performing loans (NPLs) began to emerge following the fall of the Sheikh Hasina-led government, the central bank has advised commercial bank managing directors (MDs) to go for loan restructuring and implement a "partial write-off" facility to combat the country's record-high defaulted debt.
Speaking at a bankers' meeting with MDs yesterday, Bangladesh Bank Governor Ahsan H Mansur stressed the need for robust recovery measures to reduce NPLs, which hit an unprecedented Tk6.44 lakh crore, representing 35.73% of total loans, as of September this year.
The NPL figure surged from Tk2.11 lakh crore (12.5% of total loans) in June before the government transition, and Tk3.45 lakh crore (20.20%) in December last year.
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Partial write-off and policy directives
Bangladesh Bank on 4 December officially allowed banks to partially write off bad and loss-category loans that have a slim chance of recovery. This move is primarily aimed at reducing the stated size of NPLs on bank balance sheets.
Sirajul Islam, executive director of the central bank, told TBS that MDs were instructed to diligently comply with policy support circulars aimed at rehabilitating the business and financial systems of distressed borrowers.
He added that the governor specifically advised banks to use the partial write-off for impaired and loss-category loans.
A managing director of a private bank present at the meeting said that the governor recommended offering rescheduling facilities to borrowers willing to regularise their loans, in line with existing policy guidelines.
He also highlighted the disproportionate allocation of credit to agriculture. "Agriculture contributes 14-15% to GDP, but receives just 2% of total loans," the governor said, urging banks to raise agricultural lending to over 10%.
The governor further advised banks to accelerate SME lending, recommending a 20% growth target for CMSME portfolios.
Mansur assured MDs that the provisioning requirement for CMSME loans would be reduced from 1% to 0.5%.
During the meeting, a bank chief inquired about previous requests to raise loan limits – personal loans from Tk20 lakh to Tk4 crore, and credit card limits from Tk20 lakh to Tk40 lakh. The governor asked deputy governors why the proposals had not advanced.
Rescheduling scheme fails to curb rising defaults
Despite approval of a special long-term restructuring scheme for businesses, NPLs have continued to rise, largely due to poor implementation by banks.
Bankers argue that the scheme, which includes a two-year grace period and just 1-2% down payment, is unsafe for long-term restructuring as it exposes deposits to risk and hampers recovery. They say many influential borrowers receive approval but refuse to negotiate with banks afterward.
Businesses, however, claim banks are obstructing implementation even after approval, placing a heavier burden on previous reschedulers while increasing new defaults.
They say Bangladesh Bank wants to compel banks to comply, but unless flaws in the policy are fixed, long-term rescheduling will neither succeed nor reduce default risk.
