The central bank is likely to extend the ongoing moratorium on the payment of loan instalments by another three months to December as borrowers are still struggling to make a comeback from the coronavirus pandemic.
The moratorium on bank loan payments was introduced in the middle of March after the pandemic arrived on the shores of the country and hammered economic activities for the next three months.
The support was expected to last until the end of June. Later it was extended up to September as the health crisis showed no signs of abating.
Although the economic activities are picking up, the health crisis is still there and uncertainties are running deep.
This prompted the central bank to start thinking whether the support should be extended further. A final decision has not been taken yet, Bangladesh Bank officials said.
But commercial bankers say the moratorium extension by another three months would not be a wise move given the ongoing fragile condition of the financial sector. The decision to bring all borrowers irrespectively under the moratorium facility will not bring any good for the financial sector.
Businesses and individuals, which have not been affected by the pandemic, should not be given the support, they said.
They recommend the BB follow the footstep of the Reserve Bank of India (RBI), the central bank, on extending the moratorium.
Last week, the RBI decided to extend the facility for two years only for the borrowers affected by economic hardship. Both the BB and the RBI initially declared the moratorium facility for all borrowers.
On March 19, less than two weeks after the government first reported the country's maiden coronavirus cases, the BB asked lenders not to consider businesspeople as defaulters if they fail to repay instalments until June 30 this year.
The moratorium support declared by the RBI ended on August 31, but it promptly announced an additional two years only for the beleaguered borrowers.
The Supreme Court of India, however, passed an interim order on September 3, ruling that the accounts not declared as non-performing loans (NPLs) as on 31 August will not be labelled as defaulted until further notice.
On September 1, the Indian government had informed the court that the moratorium facility for all types of personal loans can be extended for two years more.
The loans include all types of retail products, such as vehicle, home, and personal loans, agricultural and crop loans and credit card. The individuals, who have lost jobs or faced salary cut, will avail the facility by submitting proper documents, according to the RBI decision.
The self-employed will also be allowed to enjoy the support declared by the RBI.
The Indian Supreme Court continues the hearing of a case whether to waive the interest on loan moratorium granted by the RBI.
"There is no major difference between the economic situations of India and Bangladesh," said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.
"The central bank should extend the moratorium facility for at least one year to two years in the interest of the financial sector," he said.
Personal and SME loans, which have been hit hard by the recession, could be brought under the facility, he said. "Some large loans even should be allowed on a case-to-case basis for the moratorium facility."
The whole process should be implemented under the monitoring of the central bank, said Mansur, also the chairman of Brac Bank and a former high official of the International Monetary Fund.
The central bank should not waive the interest on the loans as this will put a negative impact on the income of the banking sector, he said.
He said borrowers should be allowed to pay only the interest amount of the loans during the recovery period and they will start paying back the principal amount when businesses turn around.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, echoed Mansur. "Bankers are in a state of confusion on what will happen after September."
"Both the government and the central bank should take a prompt decision to this end."
The moratorium should not be extended irrespectively as the banking sector has been facing trouble since before the pandemic, said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.
"The large borrowers should not be allowed the facility. The central bank should consider individuals and the SME sector for the support," he said.
The amount of default loans in the banking sector rose significantly in recent months as a large number of borrowers are not paying any amount of interest and principal because of the central bank's facility, said three managing directors, wishing not to be named.
Delinquent borrowers now misuse the facility, putting an adverse impact on banks, they said.
Against the backdrop, the central bank should take decision cautiously to this end such that only the affected borrowers could get the support, the CEOs said.
NPLs in the banking sector stood at Tk 96,116 crore at the end of June, up 3.89 per cent from three months earlier.
"Defaulted loans may escalate further once the moratorium support is lifted, so the central bank should cautiously handle the whole process," Hussain said.
Countries around the world are also taking steps to help their pandemic-hit borrowers.
On July 7, the Australian Banking Association announced that banks will extend the period of deferred repayments by up to another four months for affected borrowers.
The Australian Prudential Regulation Authority (APRA) also extended the regulatory approach on deferred repayments to cover a maximum period of up to 10 months until March 31, 2021.
In addition, the APRA clarified that loans that are restructured before March 31, 2021 to put the borrower on a sustainable financial footing may continue to be regarded as performing loans for capital adequacy purposes, according to the IMF.
Belgium has postponed debt repayment due to banks and insurers by affected households and companies to September 30. In parallel with the modification to the bank loan guarantee scheme, the debt service moratorium on bank loans will be extended to end-December 2020.
China has taken multiple steps to limit tightening in financial conditions, including measured forbearance to provide financial relief to affected households, corporates, and regions facing repayment difficulties.
On July 29, the central bank of Malaysia announced that the banking industry will provide a targeted loan payment moratorium extension (currently scheduled to expire on September 30, 2020) and provision of repayment flexibility to borrowers affected by Covid-19.
In addition, banks have also committed to providing repayment flexibility to other individuals and all SME borrowers affected by Covid-19. The flexibility offered by each bank will take into account the specific circumstances of borrowers.
Diligent borrowers hurt by the coronavirus crisis can apply until the end of September to delay payments on consumer, company and mortgage loans by six months, the Bulgarian National Bank said on July 14.
Hungary's government is also in discussions with local banks about a possible partial extension of a loan repayment moratorium for companies into 2021, Reuters reported.