Loan rescheduling hits new record

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Rescheduling rises 117.29% in 2019

Banks rescheduled a record amount of defaulted loans in 2019 in their frantic efforts to minimize or, in other words, to make the ever growing non-performing loans (NPLs) look small.

In the year, non-performing loans amounting to Tk50,434 crore were rescheduled, up 117.29%  from a year earlier, according to the Bangladesh Bank (BB) data.

Banks rescheduled Tk23,210 crore in 2018.

But this rising trend of loan rescheduling has failed to stem the growth of defaulted loans in banks, experts have observed.

The NPLs of banks rose by a staggering Tk3,863.14 crore in three months till September in 2019, taking the amount of stress loan in the banking sector to Tk1,16,288.31 crore, according to BB data.

The rescheduling of loans increased owing to the relaxed policy offered by the central bank, said M Kamal Hossain, managing director of Southeast Bank. 

He said that the banks got some berthing period to regularize the bad loans under the special policy. 

Along with the existing loan rescheduling policy, the central bank on May 16 last year issued a special policy on loan rescheduling and one-time exit for defaulters to reduce the high amount of defaulted loans. 

Under the special policy, defaulters got the opportunity to regularize their loans for 10 years, including one year’s grace period, at 9% interest rate, just by making 2% down payment.

As per a High Court instruction, the central bank had earlier extended the deadline for defaulters several times to have their NPLs rescheduled under the relaxed policy. Defaulters will regularize their bad loans till February 17 under the policy. 

“Rescheduling is happening across the world, which is not bad for banks. But in our country, we are rescheduling the bad loans to clean the book and reduce the bad loans in artificially without any scrutiny. As a result, the non-performing loans are not decreasing,” said Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank and former chairman of the Association of Bankers, Bangladesh (ABB). 

He said that as a short-time measure, loans rescheduling helps the banks clean the book but in the long run, it increases the defaulted loans.

According to the BB data, in 2019, the state-run banks rescheduled Tk15,286.46 crore, private commercial banks Tk30,795.77crore, foreign commercial banks Tk36.91 crore and specialized banks Tk4,314.86 crore. 

Talking to Dhaka Tribune, former Bangladesh Bank governor Salehuddin Ahmed said: “The rescheduling policies adopted by the government and the central bank for the banking sector went in the wrong direction. The defaulters were given leverage by these policies. Good borrowers are now feeling discouraged to pay debts.”

The central bank must be rigorous in reducing the default loans and all the facilities extended to the defaulters should be scrapped immediately, he suggested.