Large borrowers to get 15 years to repay default loans

Problematic large borrowers may get a maximum of 15 years to repay their default loans under the new restructuring policy of the central bank.

The disclosure comes as the seven-member committee formed last month to draw up a restructuring policy handed in its output. The draft was discussed at a meeting of the central bank’s senior management yesterday with its Governor Atiur Rahman in the chair.

Loans upwards of Tk 500 crore are set to come under the purview of the policy, which is likely to be approved at the Bangladesh Bank board meeting on January 27.

The committee led by BB General Manager SM Rabiul Hassan proposed that loans be rescheduled only if the business entity is hit by global or domestic shocks such that its capacity to repay loans on time is curtailed.

For restructuring then, a minimum down payment, which would be one percent of the loan amount, has to be paid.

However, if the bank wishes it can take more than one percent as down payment, as per the policy which has been prepared after studying those of other countries including India, Pakistan, Sri Lanka and Malaysia.

Under the policy, no loan can be restructured more than once. After restructuring, if any business group fails to repay the loan its fate will be decided as per the bankruptcy law.

The interest rate on the restructured loan would be fixed by the bank itself. However, it cannot be lower than the bank’s cost of fund.

Whether the borrower will enjoy grace period or not for loan repayment will also depend on the bank.

Under the framework, if a borrower has multiple loans with multiple banks, one bank may approach the central bank on its own for consent for loan restructuring or all banks can come together and seek approval collectively.

The policy strongly recommends that all lenders sit together and send a joint proposal to the central bank.

The need for a policy to restructure large loans came to the fore after Beximco Group appealed to the central bank to reschedule its loans amounting Tk 5,269 crore.

The conglomerate sought a lengthy duration to repay the loans, along with relaxed conditions and low interest rates.

Seeing the company’s contribution to the economy and its employment count, the central bank, in an unprecedented move, agreed to bail Beximco Group out of its liquidity crisis and subsequently asked the concerned banks to come up with suitable rescheduling packages.

The banks have forwarded their packages to BB and are now awaiting its green light for activation.

Once the restructuring policy is functional, the central bank will give the go-ahead to the restructured loan packages of Beximco Group, and some 20-30 large business groups too will seek advantage of the framework, said a BB official.

Their banks too are in favour of the move, as it prevents their default loan portfolios from ballooning, he added.

About the need for restructuring, BB Board Member Sadiq Ahmed earlier told The Daily Star: “The board members are mindful that in a market economy unforeseen circumstances can adversely affect the business of borrowers, and in extreme circumstances bank loan restructuring might become necessary to set the business on a viable path.”

In that regard, the board members agreed that it was best to have a well-defined loan restructuring policy that will provide the business case for restructuring instead of case-by-case ad-hoc decisions based on connections, he added.

Meanwhile, at a seminar in June last year, the BB governor said a well-functioning mechanism for debt restructuring and resolution has become the need of the hour, as distressed businesses are starved of financing needed for recovery.

Financial institutions in Bangladesh are barred by law from fresh lending to defaulting borrowers regardless of circumstances.

He also said that the market failure in helping distressed businesses recover entails significant loss to the economy, not only in lost output and employment in the stricken businesses, but also in erosion of competitiveness of other businesses that face higher cost of borrowing.

This is a major cause behind the downward stickiness of lending interest rates and the intermediation spreads in the market, Rahman added.