BB proposes way out for sick leather industries

Bangladesh Bank (BB) has recommended that the defaulting leather industries without potential to repay their classified loans should look for a way out either through the Bankrup-tcy Court or interest waiver arrangements with the banks.

The BB has sent the proposal to the Finance Ministry following a move by the government to find a solution to the existing classified loan problem of the leather sector. The ministry will discuss the recommendations on February 6.

The leather industries, which had been operating their loan accounts satisfactorily over the last five years but then landed into trouble due to price falls in international market, may also be allowed to submit their rehabilitation plans to their respective banks, the BB report suggested.

The banks would then take decisions on the proposals within two months. But then, these troubled leather industries which are opting for a way out should not be allowed any fresh loans or extension of the existing credit limits.

The central bank recommended that the any troubled unit may go to the Bankruptcy Court with a plan showing how much loans it is able to repay and then can get rid of its loan liabilities by making payments.

Or, it can appeal to its concerned bank for loan rescheduling and the bank may approve the proposal by giving the borrower a reasonable concession including interest waiver.

But if these exit systems prove unacceptable to any of the parties, the bank may resolve the issue by taking resort to legal measures.

Earlier, Bangladesh Finished Leather and Leather Goods and Footwear Exporters Association (BFLLFEA) and Bangladesh Tanners Association (BTA) appealed to the government to give the sector interest moratorium on working capital, project loans and Eid advances for a period of three years.

The amount of classified loans in the sector has been increasing over the past few years.

In 1995, this stood at Tk 216.42 crore or 21 per cent of the sector's total outstanding loan. But the amount shot up to Tk 815.60 crore or 58 per cent of the total outstanding loan of the sector as on June 30, 1999.

Realising the enormity of the problem, the Finance Ministry formed a seven-member committee headed by Khondokar Ibrahim Khaled, Deputy Governor of the central bank, to chalk out a possible way out of the situation.

Leather is the fifth largest export earner of the country. But unlike the garments sector, it boasts more than 85 per cent value addition.