Dhaka, Bangladesh (BBN) – The central bank of Bangladesh has revised loan classification rules allowing six months from expiry date to overdue in case of term loan to facilitate business activities.
The Bangladesh Bank (BB), the country’s central bank, has also extended three months’ time for two types of classified loans – ‘doubtful’ and ‘bad’ – on the same ground.
With the revision, the loans overdue for three, nine and 12 months will be considered as ‘sub-standard’, ‘doubtful’ and ‘bad’ respectively.
“If any installment(s) or part of installment(s) of a fixed-term loan is not repaid within the fixed expiry date, the amount of unpaid installment(s) will be treated as past due/overdue after six months of the expiry date,” the central bank said in a notification on Sunday.
The revised loan classification rules will come into effect from June 30.
The loans will be treated as ‘doubtful’ after non-payment for nine months, and ‘bad’ after 12 months, while categorising ‘sub-standard’ will remain unchanged at three months, it added.
As per the existing rules, loans overdue for three, six and nine months are classified as ‘sub-standard’, ‘doubtful’ and ‘bad’ respectively.
These revised rules will be applicable for continuous loans, demand loans and fixed-term loans.
“The central bank has relaxed the loan classification rules, considering both business environment and economic cycle of Bangladesh,” a BB senior official said while explaining the main objectives of the latest notification.
He also said the term-loan borrowers will get six months as grace period for calculation of their classified loans.
The loans, which are repayable within a specific time period under a specific repayment schedule, will be treated as fixed-term loans.
The central bank, earlier in a circular, issued on September 23, 2012, said if any installment(s) or part of installment(s) of a fixed-term loan is not repaid within the fixed expiry date, the amount of unpaid installment(s) will be treated as past due/overdue from the following day of the expiry date.
The loan accounts in which transactions may be made within certain limit and have an expiry date for full adjustment will be treated as continuous loans, like – cash credit, overdraft, etc.
The loans that become repayable on demand by the banks will be treated as demand loans.
If any contingent or any other liabilities are turned to forced loan (i.e. without any prior approval as regular loan), those too will be treated as demand loans, like – forced loan against imported merchandise, payment against document, purchased foreign bill, and purchased inland bill, etc.
Former BB governor Salehuddin Ahmed said the revised rules will not be able to bring any substantial impact on the banking sector.
“Such revisions will affect ‘credit culture’ in Bangladesh,” the former BB governor explained.
Syed Mahbubur Rahman, Chairman of the Association of Bankers, Bangladesh (ABB), said such measures will help reducing the amount of non-performing loans (NPLs) but it will delay loan repayment, particularly from term-loan borrowers.
This might impact, to some extent, the liquidity situation, he added.
The senior banker also expects that profitability of banks will improve following such rules.
Experts, however, said the BB’s latest moves would not bring any good for the banking sector; rather it would encourage borrowers to not repay loans.
The revised rules may facilitate ‘habitual defaulters’ as the majority of them got term loans in the name of project implementation, they added.