According to economists, these loan defaults are jeopardizing the entire banking sector

To help businesses stay afloat during the pandemic, the government gave loan repayment facilities to enterprises, but after failing to repay the amounts, the central bank announced that only 20% of the entire amount has to be paid which later changed to 25% within December 31 2021.

However, a huge number of businesses are still failing to meet that figure.

According to economists, that jeopardizes the entire banking sector and as a result, they have advised not to give loan repayment facilities to bigger organizations in the coming year.

Meanwhile, a few weeks ago, the International Monetary Fund (IMF) wanted to know about the banking sector loan from Bangladesh Bank (BB), after which IMF also suggested coming up with a new policy regarding loan forbearance.

Due to the worldwide pandemic, businesses enjoyed the suspension facilities on loan installments throughout the entire last year.

Dr Zahid Hussain, former lead economist at the World Bank’s Dhaka office said to Dhaka Tribune that: “Bangladesh Bank has provided equal benefits to all for repaying loans. It cannot go on like this as through this policy, the government is harming the entire banking system by giving benefits to the businessmen.”

Now loans will not be considered classified if borrowers repay 25% of their installments within December 31, but Hussain thinks this advantage can be taken away from the big organizations.

“Even though this 25% benefit has been given to organizations for the last two years, the non-performing loan is not decreasing but on the contrary, it has increased at the end of the first quarter of the year,” he added.

Earlier in this regard, the former governor of the Bangladesh Bank Farashuddin Ahmed told Dhaka Tribune that: “Just a few months ago, we saw the amount of defaulted loans increase by around Tk4,000 crore after the closure of the special Covid-19 loan repayment facility and the real picture of the banking sector started to unfold. But then again, the loan repayment facility was reinstalled as a result the real image of the banking sector has been suppressed.”

“Considering the overall situation, now the government may come up with a new loan forbearance policy and think anew in the coming year,” he added.

According to BB’s data, as of September earlier this year, the volume of NPLs stood over Tk1.01 lakh crore, which is 8.18% of the total outstanding loans.

This figure was Tk1,945 crore higher than the June figure of Tk99,205 crore earlier this year.

Bankers and insiders said that the volume of NPLs dropped last year as the central bank offered a loan suspension facility on installments for all clients.

The total outstanding loans in the banking sector stood at Tk12.45 lakh crore since till now.

Economists, bankers and market insiders think that if this continues, the entire banking sector will be brought down on its knees. As a result, banks will fail to return the investors’ money and general customers may lose confidence at some point. For which they will eventually start withdrawing money from the banks.

However, considering the current state of Covid-19, economists and bankers are not in favour of cancelling this facility altogether.

The World Bank’s former lead economist said: “In the cottage, small, micro sector, we have to think about how to make it more logical.”

On the other hand, the former Governor said: “It seems to me that it is right to continue this facility. But it must be ensured for the smaller organizations. Even in the export sector, we have recently seen a big improvement.”

At the same time, IMF made a number of recommendations, one of which was to increase lending in the banking system. At a press conference on December 19, the IMF suggested a new way of thinking about forbearance.

Repayment Policy for NBFIs

Meanwhile, the central bank further relaxed the repayment policy for the borrowers from non-banking financial institutions (NBFIs).

Under the latest terms, the NBFI borrowers will get a fresh chance to remain unclassified if they repay a minimum of 25% (it was initially 50%) of the total outstanding amount of loans or lease, even if the payment is made on the last working day of the calendar year, according to a notification issued by the central bank on Sunday.

However, the remaining 75% of the outstanding loans or leases from January 2021 to December 2021 will be payable within one year from the date of expiry of the loans or leases, it added.

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