FBCCI pushes for extending bank loan moratorium
The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) has reiterated itsrequest for Bangladesh Bank to extend an ongoing loan moratorium until June.
Moreover, the Bangladesh Association of Banks (BAB), comprising private bank sponsors, has needed exempting provisions for loans, against which instalments will be being paid frequently, from the most recent central bank directive in keeping yet another 1 per cent provisioning for most unclassified loans.
The rest of the loans making make use of the moratorium, or in other words, against which repayment instalments are not being paid, should are categorized as the purview of the excess provisioning directive, said the association.
Both platforms sought the measures sending independent letters to Governor Fazle Kabir on December 28, reasoning it had been in the interest of borrowers and banks given the business enterprise slowdown caused by the coronavirus pandemic.
But analysts have opposed the requests, saying it could not bring any good for the country's banking sector and the economy all together given the ongoing business trend focusing financial restoration.
The moratorium on bank loans was introduced in the center of March following the pandemic arrived on the shores of the united states and began hammering monetary activities for the next three months.
The support was likely to last before end of June. Later it had been expanded up to September as medical crisis showed no signals of abating.
On September 28, the central bank prolonged the moratorium up to the ongoing month of December.
This has helped lower non-performing loans (NPLs) in the banking sector in the 3rd quarter (July-September) of the year.
The NPLs stood at Tk 94,440 crore by September, down 1.74 % from that 90 days earlier and 18.73 % year-on-year, showed data from the central bank.
Although this moratorium facility adversely impacted the loan restoration of banks, it caused their net profits to go up significantly, because it massively decreased how much provision would have to be kept against the NPLs.
As per the banking rules, loan providers are permitted to transfer the curiosity of the loans, which is yet to get realised, with their income books.
This caused the web profit to become enlarged, soaring 33.60 % year-on-year to Tk 2,424 crore in the first half of 2020.
Such interest is treated as an accrued interest in banking norms. Banking institutions are allowed to exhibit the accrued fascination as income, but such amounts have to be treated as an interest in suspense if loans become defaulted.
From this backdrop, the central bank asked banks to create aside yet another amount of around Tk 10,000 crore in provisioning to soak up shocks due to the ongoing financial meltdown.
Lenders must keep an extra 1 % provision than what they today maintain for all sorts of unclassified loans, according to a good central bank find issued on December 10.
"We'd requested the central bank in September to increase the moratorium until March subsequent year. The most recent request is for extension of the support considering the ongoing economic circumstance," Sheikh Fazle Fahim, president of the FBCCI, advised The Daily Star.
The apex trade body of the united states hasn't requested waiving loans or interest but instead to extend the support for another half a year, he said.
Both proposals of the platforms are illogical, said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.
The wholesale moratorium facility cannot be expected even more as this will worsen the financial health of banks, he said.
"Banks may offer the moratorium on a case-to-case basis to selected debtors with prior approval from the central lender," said Mansur, likewise chairman of Brac Lender.
Salehuddin Ahmed, a former governor of the central lender, echoed him.
Although the next wave of the Covid-19 has already started, borrowers shouldn't be allowed to benefit from the moratorium further, he said.
"We must run the firms to keep tempo with the deadly flu. Financial health of banking institutions will face deep problem in case there is a stretching of the deferral support once more," Ahmed said.
The Daily Superstar also talked to five handling directors of banks, all of whom opposed the FBCCI proposal, reasoning that such an extension would generate a roadblock to the gearing up of a cash flow from their borrowers.
However, none of them wanted to go on record as a result of sensitivity of the matter.
Mansur and Ahmed said the directive on keeping yet another 1 % provisioning against all unclassified loans ought to be strictly enforced by the central lender.
Banks must face more complications in the days ahead compared to what was in existing instances as a result of aftershock stemming from any financial meltdown, they said.
If the provision base in banks is strengthened, they will be able to tackle the problem smoothly.
The BAB, even so, in its letter claimed that a lot of banks would face "an extremely negligible or negative profit after tax" if they were to keep the provision.
"Such in a situation, shareholders, international partners, different stakeholders will lose their trust in banks' risk assessment types of procedures and also on publicly obtainable profitability information," it said.
In addition, the negative outcome of the financial results may cause a deterioration of the credit rating of banks and overall cost of borrowing by banks increase due to the higher charged imposed by corresponding intercontinental banks, said the BAB.
The five managing directors, on the other hand, reinforced the BAB proposal.
