Bank loans will be considered defaulted if they are overdue for 90 days.
The central bank is going to start international practice again in determining the standards of bank loans. The regulatory body has decided that if a loan is not repaid within a specified period, it will be considered overdue. After that, if the loan is unpaid for more than 90 days, it will become defaulted. Through this, Bangladesh Bank has tightened its position on defaulted loans.
The central bank issued the latest policy on defaulted loans on Wednesday. This policy will be effective from April next year.
Under pressure from politically close businessmen and big defaulters, Bangladesh Bank had relaxed the policy on defaulted loans during the former Awami League government. Currently, customers have the opportunity to remain free of default for one year after a loan expires. As a result, customers can take new loans.
Bankers fear that the amount of defaulted loans may more than double after the implementation of the new rules. In addition, it will have a negative impact on the bank’s profits due to the additional security reserves against regular and defaulted loans. However, Bangladesh Bank has said that this will reveal the true picture of the assets of the country’s banks.
Bangladesh Bank had strict policies on defaulted loans even during the Awami League government. However, the regulatory body could not maintain it. The strategy of hiding defaulted loans was chosen by giving various concessions in the policy. Even then, defaulted loans are increasing under that relaxed policy.
Now, after the interim government took office, the true picture of the banks’ defaulted loans is coming out. According to Bangladesh Bank data, the defaulted loans of the Islami Bank, which changed ownership, have more than doubled. The loans of many, including Awami League-close business groups Beximco, S Alam, Bashundhara Group, have become defaulted. As a result, the total defaulted loans increased by Tk 73,586 crore in the last July-September quarter. As a result, the defaulted loans increased by Tk 2,84,977 crore at the end of September, which is 16.93 percent of the total loans of the banking sector. During the period in question, the defaulted loans of private banks increased more than the increase in defaulted loans in government banks. For example, the defaulted loans of government banks increased by Tk 23,628 crore, and the defaulted loans of private banks increased by Tk 49,885 crore.
Why the change in the policy
Bangladesh Bank said that considering the need to align with international best practices, a new policy has been issued after 12 years. Through this, necessary instructions have been given in light of Basel-3 principles. The government and Bangladesh Bank have already taken various steps to reform the banking sector. As part of these steps, the aforementioned instructions have been given in light of international best practices. As a result, it will be possible to assess the actual quality of bank assets.
It is known that the central bank finalized the policy on defaulted loans after several rounds of discussions with the World Bank and the International Monetary Fund (IMF). In addition, it has been decided to instruct banks to prepare reports according to this policy in June next year. Banks prepare reports on loan quality on a three-month basis, so this policy will be effective from April.
What is in the policy
Currently, depending on the type and sector of bank loans, customers have the opportunity to remain free of default for up to one year after the loan expires. In the case of cottage, micro, small and medium (CMSME) loans, it is added to the list of defaulters after 9 months of expiration. In the case of agricultural loans, farmers get up to 15 months without repaying the installments. On the other hand, in the case of industrial loans, current loans, term loans and demand loans, those loans are added to the list of defaulters after different periods.
The new rule states that in the case of all types of loans, it will be considered as overdue from the day after the date fixed for repayment/adjustment. In the case of all types of loans, if the loan expiration period is between three and six months, it will be considered as low-quality default. If it is between 6 and 12 months, it will be considered doubtful and if it is 12 months or more, it will be considered as bad/harmful default.
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