Private banks' association seeks extension on term loan repayment, not all members aligned

The Bangladesh Association of Banks (BAB) has requested the Bangladesh Bank for an extension of six months for the repayment of term loans, citing the current economic challenges as the primary reason for their request.

However, several members of the association opposed the request.

The association of private bank owners and directors sent a letter to the central bank on 31 July in this regard. The letter, signed by BAB Chairman Md Nazrul Islam Mazumder, was addressed to the then-governor of Bangladesh Bank, Abdur Rouf Talukder, who recently resigned following the change in government.

The association in the letter mentioned that under the previous regulations, overdue loans were recognised six months after the due date of repayment. However, the central bank recently amended this rule, stating that starting 30 September this year, loans would be considered overdue three months after the due date and from 31 March 2025, loans would be considered overdue the day after the due date.

The association urged the central bank to postpone the implementation of this new rule until 31 March 2025 instead of 30 September this year. They said this extension would provide necessary relief given the current economic situation.

Before a bank loan becomes classified as "defaulted", it first goes through a stage called "overdue". When loan instalments are not paid on time, the loan is considered overdue. If the overdue status persists, it eventually leads to the loan being marked as defaulted.

In addition, the BAB has requested that all unclassified and rescheduled loans be deferred until September. They proposed that the repayment of these loans be divided into three instalments during the final three months of the loan term.

However, several members of BAB have stated that there was no discussion with them before issuing this letter. They said usually, decisions in BAB are made without consulting with them and the chairman runs the organisation according to his will. 

Many of the banks that are currently performing well have little representation on the executive committee, so it is questionable whether these demands reflect the views of all banks, they added.

Describing the demands as "regressive", a chairman of a leading bank said that though the recent student protests and subsequent unrest have undoubtedly affected businesses, the damage was not so severe that such concessions are necessary.

Tanjil Chowdhury, chairman of Prime Bank, told The Business Standard, "These types of concessions might offer temporary breathing space for businesses, but they are not sustainable. To move towards sustainability, we need to ensure that a bank's capital, liquidity coverage ratio (LCR), advances to deposit ratio (ADR), and assets align with its liabilities. Banks with risky parameters should be addressed immediately. Offering blanket concessions without considering these factors is futile."

A senior official from the central bank's banking regulation and policy department stated that there is no scope for granting such concessions, citing advice from the International Monetary Fund (IMF).

Despite multiple attempts to reach BAB Chairman Md Nazrul Islam Mazumder for comments via phone calls and messages, he did not respond.