Dhaka, Bangladesh (BBN)-The government has announced a six-point reform programme, including the enhancement of capital base for streamlining the country’s banking sector.

Under the reform package in the budget, the authorities will jack up the capital base of banks — authorised and paid-up included.

Besides, stern measures will be taken against the wilful defaulters of bank loans.

The government also committed to amending the existing Bank Company Act (BAC) to enable force amalgamation, merger and absorption of banks.

The law will be amended so that bank management, all components of revenue management, including VAT, customs and income tax can function smoothly, without any conflict with other statues.

Necessary amendments will also be made to modernise the functions of holding companies and subsidiary companies under the reform programme.

“We’ve been working to bring down the interest rates of bank loans to single digit with a view to making our industries and businesses more competitive,” said the budget document.

About establishing a Bank Commission for bringing discipline in the banking and financial sector, the finance minister said that they would discuss the matter with all concerned and act accordingly.

The government’s latest announcement came against the backdrop of ballooning soured loans in the country’s banking sector, despite close monitoring by the central bank.

The volume of defaulted loans climbed by more than 18 per cent to BDT 1,108.73 billion in the first quarter (Q1) of 2019 from BDT 939.11 billion in the earlier quarter.

The central bank is now working on submitting recommendations for amending the three laws and a regulation to the ministry of finance (MoF) for reducing the volume of defaulted loans in the banking sector.

The laws, which will be amended necessary amendments are BAC, Bankruptcy and Negotiable Instrument while Merger and Acquisition (M&A) regulation is also set to be amended.

“….we’ve arranged an exit for the loan recipient through effective insolvency and bankruptcy laws,” the finance Minister AHM Mustafa Kamal said in his budget speech Thursday.

Earlier, there was no exit route for the loan recipient if he/she fails to repay the bank loan.

“We’ve observed that no mentionable instruments were used in our financial sector. This has led banks to give long term loans by collecting short term deposits. This creates a mismatch. It may turn out to be critical sometimes,” the minister noted.

The government will take necessary measures to remove such kinds of mismatch through encouraging instruments like Wage Earners’ Bond, venture capital, including a vibrant bond market, according to the budget.

“Necessary reform initiatives have been taken so that the loan recipients can repay their loan in time, for establishing improved loan culture in the country,” it added.

Central database for large credit (CDLC) has been established for close monitoring of large loans and strengthening the monitoring system of banks and financial institutions.

“Instruction has been given to keep the weighted average spread of interest rates limited within 4.0 per cent except for credit cards and consumer loans,” the minister noted.