Bangladesh Bank tightens rules to restore discipline in import financing

The central bank yesterday drew up a detailed guideline on post-import financing (PIF) to end the misuse of loans extended to pay for imported goods and bring discipline in the foreign exchange regime in the banking industry.

Previously, some delinquent borrowers frequently used the PIF window to siphon off money from lenders, compelling the Bangladesh Bank to prepare the guideline, said a central banker.

Under the PIF, banks extend loans to importers to help them pay the cost of the imported items within the stipulated time. This gives importers the opportunity to repay it after selling products.

Conventional banks earlier used to treat such financing as loans against trust receipts, while Shariah-based banks called it Murabaha trust receipts.

The central bank has asked banks to cite the lending product as PIF going forward, according to a BB notice yesterday.

Importers have to pay back the loans under the facility within three months for consumer goods and six months for industrial raw materials as per the previous instruction of the central bank.

Now, banks will be allowed to extend the repayment tenure by a month for consumer products and two months for industrial raw materials. Banks will have to take approval from their boards for such extension.

There have been many examples that clients had not repaid the loans taken under the PIF on time, the BB official said.

The delinquent borrowers converted their PIFs into term loans by having them rescheduled. At one stage, the term loans defaulted, meaning the importers did not repay the loans despite selling their imported products, creating a problematic situation.

Banks have so far disbursed nearly Tk 52,000 crore in the form of PIF. A large portion of the fund is in the defaulted zone, the official said.

Mir Nasir Hossain, a former president of the Federation of Bangladesh Chambers of Commerce and Industry, said that everything should be done based on the bank-customer relationship.

"If banks do not follow the rules, corporate governance in the banking industry will not improve," he said.

The central bank has asked banks to formulate a policy on the PIF following consent from the board.

Businesses that are owned by the same person will not be eligible for the PIF facility.

Banks will have to follow the BB guidelines on risk management and internal credit risk rating system before lending under the PIF.

The central bank asked banks to verify whether clients meet all conditions as per banking norms before they are allowed to avail of the facility.

Importers will have to keep mortgage with banks against the loans.

Clients will not get any fresh PIF facility if their previous loan remains outstanding. But if clients face any unexpected adversity, banks can offer the facility with approval from the board.

Lenders have been barred from stating the PIF as term loans even if they reschedule the credit.

Banks will have to set up a PIF monitoring unit to recover the loans. A skilled team who has strong knowledge of foreign exchange rules must be appointed for the cell.

The internal audit department of banks will carry out an audit every three months to monitor the loan status under the lending facility. If required, audits should be conducted on an emergency basis at any time, the BB notice said.