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Loan recovery slows in Q2

BB's relaxed rescheduling policy to blame

AKM Zamir Uddin
Banks’ loan recovery momentum slowed down in the second quarter of 2019 as many defaulters showed unwillingness to pay back loans to enjoy the central bank's relaxed rescheduling facility.
Between the months of April and June, Tk 5,454.25 crore was recovered, down 7.22 percent year-on-year, according to data from Bangladesh Bank.
The feeble recovery widened the volume of default loans further, creating an extra pressure on the ailing banking sector, said analysts.
As of June 30, total default loans in the banking sector stood at Tk 112,425 crore, up 25.83 percent year-on-year.
Typically, banks go for a strong cash recovery drive before the months of June and December to clean up their balance sheet and paint a rosy picture.
But this time, lenders' effort has become futile due to the central bank's relaxed policy, which has given a fresh lifeline to defaulters.
As per the new policy, defaulters will be allowed to reschedule their classified loans by providing only 2 percent down payment instead of existing 10-50 percent.
A maximum of 9 percent interest rate will be charged on the rescheduled loans, which is much lower than the existing interest rate of 12-16 percent.
The tenure for repayment is 10 years with a grace period of one year, which is much longer than the existing duration for most of the loans.
Although the BB had announced the extraordinary facilities for defaulters in the third quarter of May, many of the borrowers were aware of it way in advance, said a BB official.Besides, the insufficient recovery has also hit the ongoing liquidity crisis in the banking sector, eroding the banks' capacity to disburse fresh loans, he said.
The government should take measures immediately to speed up Ioan recovery or else default loans will increase further in the days ahead, said Ahsan H Mansur, executive director of Policy Research Institute.
Wilful defaulters should be brought to book with the view to ensuring corporate governance in the banking sector, he said.
The judicial system should be reformed to resolve the pending cases in the money loan courts and vacate the writ petitions in the high court, said Mansur, also the chairman of Brae Bank.
Syed Mahbubur Rahman, managing director of Dhaka Bank, echoed the same.
The government should increase the number of money loan courts and judges to resolve the pending cases.
"This will help banks recover default loans within a short amount of time," said Rahman, also the chairman of the Association of Bankers, Bangladesh, a forum of private banks' managing directors.
Besides, the central bank's relaxed policy for loan rescheduling had not been in force on time due to the stay order given by the High Court, which also put an impact on the recovery process.
The Supreme Court, however, stayed the High Court orders on July, allowing defaulters to reschedule their loans with the relaxed conditions.