Businesses can avail flexible loan repayment facility up to Dec

flexible loan repayment

Large industries, SMEs and the flood-hit agriculture sector will enjoy a flexible loan repayment facility up to December this year as Bangladesh Bank yesterday revived the partial loan moratorium amid a deepening economic crisis.

The central bank move came after the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), the country's apex trade body, pushed for a relaxed loan classification policy till December.

The managing directors of banks and economists, however, opposed any relaxation of the loan repayment rules since it worsens the financial health of lenders and nurtures a bad habit among borrowers.

They argued that though the relaxed loan repayment facility brings down the amount of bad loans for the time being, it ultimately pushes up the amount of defaulted loans.

Yesterday, the BB said it noticed that borrowers are struggling to repay loans due to the hike in prices of raw materials and other inputs as well as transport costs.

It pointed to the negative impacts of the lingering coronavirus pandemic, rising virus infections, floods in the northern and northeastern regions and escalated commodity prices globally for the Russian-Ukraine war.

The deferral support is aimed at retaining the momentum in economic activities and the credit growth in the private sector, the BB said in a notice.

As per the BB's latest instructions, borrowers in large industries would be able to avoid falling into the defaulted loan category by repaying half of the loans payable for the April-June period.

The borrowers must clear 60 percent of their unpaid loans in the July-September quarter and 80 percent in the fourth quarter of 2022 if they don't want to be classified as defaulters.

For cottage, micro, small and medium enterprises (CMSMEs), borrowers must pay 25 percent of the payable loans in the April-June quarter, 30 percent in the second quarter and 40 percent in the last quarter of the year to avoid falling into the defaulter category.

Only the term loans, which carry a repayment period of more than a year, will qualify for the fresh relaxed classification treatment, said the notice.

In the flood-hit areas identified by the disaster management and relief ministry, borrower-farmers will not be declared as defaulters even if they fail to pay any instalment between April and December.

CMSME borrowers in the affected areas will have to clear 25 percent of the unpaid loans for the nine-month period.

The working capital loans due as of April 1 this year can be repaid by December. Such loans are taken to finance a company's day-to-day operations.

The unpaid portion of the loans, payable in the nine-month period, will be added to the next year's loans and the instalment sizes would be adjusted accordingly, the BB said.

Banks can't impose any penal interest or fee on the beneficiaries for the April-December period.

The loans that were unclassified as of April 1 this year will only be eligible for the new relaxed repayment facility.

The borrowers who enjoyed the BB's relaxed facility in 2019 could also get the deferral support.

The BB, however, didn't say whether banks would be allowed to show their unrealised interests against the loans enjoying the deferral support as income and how much funds lenders must keep aside in the form of provision to cover loan losses.

Instructions to this effect will be given later, said the notice.

Borrowers in Bangladesh enjoyed a full-year payment holiday throughout 2020 because of the pandemic and could avoid slipping into the defaulter category by paying 15 percent of the instalments payable for 2021.

The central bank discontinued the support from the beginning of this year as virus infections fell, paving the way for the economy to rebound strongly, before coming under pressure after the Russian-Ukraine war.