Rising loan irregularities, gross mismanagement and undue interference of politically appointed boards have turned the banking sector a growing malignancy for the economy. The Bangladesh Bank report shows that the amount of bad loans reached Tk 93,911.4 crore in 2018 from Tk 22,482 crore in 2009. Of the Tk 93,911 crore, Tk 8,780 crore in loans were classified as sub-standard, Tk 4,434 crore as doubtful and the rest Tk 80,696 crore as bad. In this situation, instead of taking steps for recovery, the government has progressively relaxed loan classification and other related rules. The central bank on Sunday issued a circular that has redefined bad loans by extending period of non-payment from nine months to a year or more whereas previous rules defined any loans overdue for more than nine months and less than a year as bad loans. The banks’ requirement to keep provision against defaulted loans would, therefore, fall drastically and the capacity to issue fresh loans would increase in an ‘artificially’ created space. By relaxing the loan classification rules, the central bank has tinkered with number to cosmetically portray a better financial situation in the banking sector which many experts have considered irresponsible.
Experts view the new rule as risky as this would allow more misgovernance in the sector already mired in irregularities. The reclassification has authorised banks to falsely classify loans that have already been identified as bad and risky as relatively better performing loans. Existing loan defaulters get a break when efforts should have been focused on enforcing strict repayment schedule. Reclassification is eventually an attempt at legitimising the habitual defaulters as the majority of them got term loans in the name of project implementation. This is not the first time in recent months that the government has liberalised policy for defaulters. In February, the central bank relaxed the loan write-off policy by extending banks’ capacity to write off loans of Tk 2 lakh from Tk 0.5 lakh. Similarly, in April 2018, the government reduced commercial banks’ mandatory cash reserve ratio to 5.5 per cent of their deposit from 6.5 per cent. State agencies were also asked to deposit 50 per cent of their funds in private commercial banks. The previous limit was 25 per cent. Taken together, these steps help the government to superficially project a better scenario of the sector without addressing the structural causes that created the crisis.
The government, therefore, must consider the concern of experts before enforcing the new loan classification rules. Instead of creating an artificial space for further intransparency in credit approval, administration and oversight, poor selection of borrowers, politically motivated lending and negligence in risk management, the government must consider a strict mechanism to ensure repayment. It should also institute a banking commission to oversee the banking sector governance issues.
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