Banks to bear the brunt of political unrest
Pressure on banks to compensate the businesses affected by the ongoing blockade and shutdowns is mounting by the day.
Garment exporters, textile millers, realtors and cement and steel makers etc have come up with fresh demands, including relaxed loan and default rules, in the wake of the blockade that has continued for the last 70 days putting businesses in trouble.
“It will be bad for the banking industry if it continues to compromise on the lending rules,” said Chowdhury Md Feroz Bin Alam, general manager of Banking Regulations and Policy Department at Bangladesh Bank.
Commercial banks supported their clients in 2009 and 2013, cushioning them against the impacts of global recession and domestic political unrest, he said.
However, lenders feel differently -- if their borrowers' businesses are at risk, they may not be able to repay the loans. As businesses could not operate without hindrance amid volatile political climate, its effect is being felt on the banking sector as well.
“Banks will suffer, if their clients suffer,” said Shafiqul Alam, managing director of Jamuna Bank. “We have to take their sufferings into consideration.”
In December 2013, the BB relaxed the loan rescheduling rules for businesses affected by political instability.
In a guideline issued at that time, the BB had suggested the lenders reconsider loan rescheduling and down-payment periods on a case-by-case basis for the affected borrowers in all sectors until June 2014.
Banks regularised Tk 18,552 crore under the relaxed loan-rescheduling rules formulated in December 2013, to assist the businesses affected by political unrest ahead of the January 5, 2014 national elections, BB data show.
Earlier this year, the central bank had also approved a separate loan restructuring policy for the big defaulters -- worth over Tk 500 crore. The highest payment tenure will be 12 years for restructured term-loans and six years for demand and current loans. The rate of down-payment will be 2 percent for loans less than Tk 1,000 crore and 1 percent for those above.
Banks will also be allowed to charge an interest rate that is only 1 percentage point more than their cost of fund. After restructuring, these borrowers can get fresh loans.
Banks' net profit dropped around 17 percent year-on-year in 2014 to Tk 5,993 crore on the back of mounting bad loans due to the political unrest in 2013, according to data from the central bank.
Many bankers said they hardly had any new business in January-February due to the prolonged political unrest and anti-investment climate.
“There were hardly any fresh loans given out in the last two months. We are also extra-cautious in giving loans,” said Abdul Quddus, managing director of NRB Global Bank.
He also fears bad loans will rise as factories cannot sell their products or bring in raw materials into the factory, which may affect their loan instalments.
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