Shipbuilders served loan rescheduling on silver platter

At a time when the country's banking sector is going through a liquidity stress, the borrowers from the shipbuilding industry are being gifted with a 10-year loan rescheduling facility by the finance ministry.

As of December last year, the total loans to the shipbuilding industry, whose contribution to the economy is less than 1 percent, were Tk 4,600 crore, and now the banking sector will be saddled with the sum for the next decade.

The loans carry interest rate of 10-13 percent, but as per the special package being offered to the shipbuilders the interest rate will be revised down during rescheduling.

Of the loan amount, only Tk 860 crore is with the state banks, meaning the move will intensify the ongoing liquidity crisis in the banking sector, the epicentre of which is in the private banks.

It will also enable indiscipline in the banking sector further, said a central bank official requesting anonymity to speak candidly about the matter.

“The Bangladesh Bank was not in favour of extending the package to the shipbuilders but the finance ministry put it in a tight stop.”

The finance ministry sent a letter to the central bank in August last year asking it to issue a notice offering long-term loan payment facility for the industry upon request from shipbuilders.

“But the central bank refused to issue any such letter.”

The shipbuilders had first approached the BB in August last year for the facility but their request was turned down. Subsequently, they went to the finance ministry, he said.

On January 3 this year, the finance ministry held a meeting with representatives from the shipping ministry, the Bangladesh Securities and Exchange Commission, the Association of Bankers Bangladesh and the BB over the issue.

At the meeting, a decision was taken to assist the borrowers of the shipbuilding industry with loan rescheduling for 10 years with three years grace period.

It was also decided at the meeting that the interest rates on the loans would be revised down and the rescheduling would be done without any down payment. Those who had already rescheduled their loans will also come under the facility.

Then on March 25, the ministry forwarded the decision to the central bank asking it to take the necessary measures for implementation.

Accordingly, on April 4, the central bank sent out a notice advising all banks to follow the ministry's decision.

The rescheduling package is similar to the one extended to 11 big business groups in 2015 involving loans amounting to Tk 15,000 crore.

The package did not yield the desired result as most of the companies turned defaulters within two years of their payment schedule.

“This will be a great mistake,” said Khondkar Ibrahim Khaled, a former deputy governor of the BB. Besides, the finance ministry has violated the bank company act by imposing the decision on the central bank, he said.

The bank company act clearly states that the BB has the sole authority to do loan rescheduling or restructuring, according to Khaled.

Contacted, Abu Hena Mohd. Razee Hassan, deputy governor of the BB, and Eunusur Rahman, senior secretary of banking and financial institution division of finance ministry, declined to comment on the matter.

On the other hand, the banks are being inconvenienced by the loans of the shipping industry, which is going through a prolonged slump in business.

For instance, Ananda Shipyard, one of the largest shipbuilders, took Tk 1,300 crore loans, leaving seven banks in trouble.

Western Marine Shipyard, the leading shipbuilder of Bangladesh, has loans worth more than Tk 1,000 crore with many banks. It has been unable to make loan instalments regularly.

“The main problem of the shipbuilding industry is the high cost of funds,” said Md Sakhawat Hossain, managing director of Western Marine.

The shipbuilder's investment is higher than its operating income, he added.

Currently, more than 100 companies are involved in the sector.