Business leaders want exit policy for ailing industries with up to 2% down payment

Highlights:

● BCI proposes 2% down payment, one-year moratorium, and 12-year repayment for large enterprises

● Suggests 1% down payment and 15-year repayment for SMEs

● Proposes raising single borrower limit from 15% to 25% of bank capital

● Calls for reduced bank interest rates from the current 15%

● Demands quicker cash incentive disbursement within 2–3 months

● Requests policy support for rising energy costs and higher taxes

Business leaders have called for an exit policy for struggling large and medium-sized industrial enterprises to help them address their bank liabilities.

During a meeting with the Bangladesh Bank governor on Sunday (12 January), they highlighted the need for an exit policy as businesses face mounting pressures from high interest rates, rising energy costs, and increased taxation.

"There are no clear policies on how existing ailing industrial enterprises in Bangladesh will be liquidated. We have requested an exit for businesses unable to operate profitably and with dignity," Anwar-ul Alam Chowdhury (Parvez), president of the Bangladesh Chamber of Industries (BCI), told the media after the meeting.

The proposal includes a facility for large enterprises to repay bank liabilities with a 2% down payment, a one-year moratorium, and a repayment period of 12 years.

For small and medium enterprises (SMEs), the BCI suggested a similar policy with a 1% down payment, a one-year moratorium, and repayment over 15 years.

When asked how ailing organisations would repay their liabilities after availing of the exit facility, Anwar-ul Alam said, "A person often owns multiple organisations. Not all organisations face difficulties at the same time. The liabilities of the struggling institution can be repaid through the income of their other profitable businesses."

A senior Bangladesh Bank official said the central bank introduced an exit policy for defaulters in June last year under the previous government.

"Given the changes in the economy and political landscape under the interim government, the policy may require reviewing," he noted, adding, "We've formed a team to evaluate this and will make decisions soon."

Exit policy for borrowers

In July last year, Bangladesh Bank introduced an exit policy for defaulted borrowers, allowing up to three years to repay their loans with a 10% down payment.

This exit facility does not involve debt rescheduling or restructuring, and borrowers will be ineligible for new credit until the existing loan is fully repaid.  

The central bank specified that banks would determine the installment period, enabling borrowers to settle their dues through multiple payments within the three-year timeframe. 

Besides, in 2019, the central bank issued a special policy regarding a one-time exit for customers with loans over Tk500 crore. 

According to the policy, the loan is to be repaid over 10 consecutive years with a grace period of one year, at 9% simple interest, with a 2% down payment.

Managing directors of two banks, requesting anonymity, told The Business Standard that the previous experience with exit policies wasn't promising. 

They explained that banks typically collect short-term deposits from customers. If these funds are lent to businesses for 12-15 years, it may harm the economy, as many banks are currently facing liquidity issues due to prolonged business exemptions.

They recommended that the Bangladesh Bank carefully consider the issue and evaluate it on a case-to-case basis to prevent misuse.

Loan classification policy 

The business leaders also requested that the existing loan classification policy not be immediately aligned with international standards and that current facilities remain in place until December this year.

Under IMF loan conditions, the Bangladesh Bank has begun classifying loans after six months of overdue payments, down from the previous nine months. From April, the system will fully align with international practices, marking loans as defaulted after three months of overdue payments.

Regarding loan classification, a banker emphasised the importance of following international practices in banking. Even if it leads to an increase in non-performing loans, he believes this approach would present a more accurate picture of the bank's health.

Concerns and other proposals 

At the event, BCI President Anwar-ul Alam further said, "On one side, the government is increasing VAT and taxes, and on the other, the prices of gas and electricity are constantly rising. Workers' wages also need to be increased. Meanwhile, the central bank has made loan classification even more stringent.

"If these facilities are withdrawn, it will become very difficult to do business. We have requested policy-based support and urged the central bank to issue a separate circular to address these concerns."

The BCI also raised concerns about the treatment of companies as groups. Most companies are not registered as groups under the Joint Stock Company, but banks consider them as such if they share the same directors. This contradicts the Joint Stock Company Act.

As a result, if one company under a group becomes non-performing, other companies with the same directors are denied loan facilities. The BCI urged that each company be treated as a separate entity.

The BCI also raised concerns about delays in cash incentive disbursement. Submissions for cash incentives take 9–12 months for audit and another 8–12 months for disbursement. 

The BCI called for this process to be reduced to 2–3 months.

They also proposed increasing the single borrower limit for groups from the current 15% of a bank's capital (for funded exposure) and 10% (for non-funded exposure) to 25%, citing the devaluation of currency and its impact on party exposure limits.

The business leaders underscored the need to address several key issues impacting the industrial sector. 

They urged the government to reduce bank interest rates, which have risen significantly from 9% to 15%, making it challenging for manufacturing industries to sustain operations. They called for fiscal support or alternative solutions to mitigate this burden.

They also highlighted the importance of developing mechanisms for long-term financing, as scheduled banks currently lack the capacity to offer such facilities. This, they argued, is essential for ensuring the stability and growth of businesses.

To support cottage, micro, small, and medium enterprises (CMSEs), they proposed lowering interest rates and expanding financing through digital platforms. They suggested selecting specific districts or SME clusters to pilot such initiatives.

The business leaders stressed that implementing these measures is critical to ensuring the survival and growth of the industrial sector.