Loan rescheduling facility for 300 firms draws mixed reactions from bankers, economists

The Bangladesh Bank (BB) has approved a loan rescheduling facility for around 300 companies, including some of the country's largest corporate defaulters. 

Under the plan, firms may be allowed to extend repayments for up to 15 years, with a low down payment and grace periods of up to three years.

The move has drawn mixed reactions from bankers and economists. They note that while this gives commercial banks the option to reschedule loans, it will not necessarily improve their cash management. 

At the same time, many agree that factors like the rising dollar value and increasing interest rates have contributed to companies defaulting, and these businesses deserve a chance to recover. 

However, they also cautioned that similar opportunities in the past have not always led to loan recovery.

Arief Hossain Khan, executive director and spokesperson of the Bangladesh Bank, told TBS that the decision was made after a thorough review by a committee comprising experts, ministry officials, and business representatives.

Has BB done a forensic on the effectiveness of rescheduled loans? Surely this has been an unsuccessful model.

Muhammad A (Rumee) Ali, former deputy governor, Bangladesh Bank 

"We have approved loan rescheduling for nearly 300 companies. Many of these firms have been politically affected and unable to conduct business properly over the last 16-17 years, which led to their loans becoming non-performing," he said.

Arief added that the terms of repayment, down payment amounts, and grace periods were determined through mutual agreement between the banks and the borrowers. "This is a win-win situation for both parties, as it will reduce the provisioning requirements for banks and benefit the customers."

Concerns over past failures and monitoring

Muhammad A (Rumee) Ali, former deputy governor of the Bangladesh Bank and chairman of the Commission on Banking at the International Chamber of Commerce Bangladesh, expressed scepticism, stating that he does not foresee a positive outcome if the same methods as in the past are used.

"Has BB done a forensic on the effectiveness of rescheduled loans? Surely this has been an unsuccessful model," he said. 

Ali suggested that the central bank should have created a new model with "greater commitment/higher stakes for the borrower by increasing security and seeking out a greater contribution." 

He believes that all unencumbered businesses and personal wealth of the borrower should be used as collateral, and the concept of "limited liability" should not be an obstacle to a successful loan repayment.

"We hope monitoring of these rescheduled loans is done diligently by the Bangladesh Bank and most certainly, we do not want to see history repeating itself," Ali added.

Audit firm reports

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank, said that the central bank granted permission based on audit firm reports, and now banks have the option to decide whether to reschedule the loans according to the central bank's guidelines.

He noted that rescheduling could hurt banks' cash flow. "Where banks previously expected to recover a large portion of these loans in three years, rescheduling them might mean it will now take 10 years."

When asked if the central bank's actions resembled those of the previous Awami League government, Mahbubur responded, "The previous government used to issue loan rescheduling circulars to give advantages to specific groups. As a result, other groups also received some benefits. This time, the central bank has tried to grant permission to genuinely affected companies after a thorough review."

Economists urge caution and integrity

Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), believes the central bank may have found confidence in the audit reports, suggesting that some concessions would increase the potential for loan repayment. 

"I think the central bank wants to give a chance to defaulters to regularise their loans before taking a stricter stance," she said.

Mustafa K Mujeri, former director general of Bangladesh Institute of Development Studies and former chief economist at Bangladesh Bank, warned that while such facilities might reduce the number of non-performing loans on paper, the real situation would remain unchanged. 

"Our experience shows that companies that receive these facilities often don't repay their loans properly," he said.

Mujeri emphasised that loan rescheduling must have an honest purpose and should not be a blanket policy. "The banks must use their power to reschedule loans with integrity, and we must ensure that these facilities are not misused again."