Whose side is Bangladesh Bank on?

Yet again, the Bangladesh Bank (BB) has decided to substantially relax the policy for rescheduling default loans, despite the proven track record of such schemes failing to benefit the banking sector or the country – repeatedly. As per its new policy, defaulters will be allowed to repay term loans over a maximum period of eight years, whereas it was previously two years, and reschedule their non-performing loans (NPLs) four times, whereas previously they could do so three times.

Defaulters who took term loans would be allowed to repay funds over a period of six years to eight years, in contrast to the nine months to two years previously. And they will also enjoy a grace period of between six months and one year before they need to start repaying the rescheduled loans. Such grace periods were absent in the previous central bank policy. Such policies, along with a big relaxation of rules on down payments that are required to be made by defaulters, have allegedly been issued to keep the financial sector stable from the adverse impacts of the Covid pandemic and the Russia-Ukraine war, according to the central bank.

The fact remains, however, that such rescheduling policies have only harmed our banking sector, instead of helping it. That the default loans have risen over the past years – despite all the sugar-coating that the Bangladesh Bank has allowed other banks to do via accounting manipulation – hitting a near record high in the first quarter of 2022, proves it beyond a shadow of a doubt. Therefore, we fail to understand on what basis the central bank claims that their latest measures will help the banking sector. What evidence does it have to back up its claim? It's time for our banking regulator to share that – if it exists at all.

We are not against policies that are business-friendly. However, given that most of the impacts of the pandemic are expected to wane soon, why would the Bangladesh Bank allow defaulters to pay term loans over a maximum period of eight years? Why not offer such facilities exclusively to those businesses that actually need them – such as small and medium enterprises? By offering such blanket facilities, the central bank is simply paving the way for habitual defaulters to exploit them, as has happened extensively in the past. The Bangladesh Bank has apparently said that habitual defaulters will not be allowed to enjoy any policy support from the relaxed rules. But we have heard it sing from the same song sheet many times before, only to see habitual defaulters benefit every time, pushing the NPLs up. What actual measures will the central bank take to ensure that this time it's different? The public has a right to know, and the Bangladesh Bank owes them a full explanation.