Govt to set up company to salvage soured loans
The federal government now plans to create a state-run corporation to get and trade distressed loans off banks within its efforts to completely clean up the financial sector.
The planned Bangladesh Asset Administration Corporation (Bamco) will be run as a state-run entity by the Financial Institutions Division beneath the finance ministry.
The government had initially planned to create a company to manage the mounting default loans in the financial sector.
The division has prepared a draft of the Bangladesh Asset Control Corporation Act 2020(Bamco) to the effect.
The authorised capital of the planned corporation would be Tk 5,000 crore and the paid-up capital would be Tk 3,000 crore. A 15-member table led by a chairman would manage it.
The corporation would create a trading platform to buy and sell default loans and create a competitive market to trade distressed assets. It will be able to raise funds from the capital industry by issuing bonds.
Despite more than a few measures in Bangladesh, like the implementation of prudent measures in the bank operating system in 1990 and loan classification and provisioning with the foreign standards, the default loans in the bank operating system are still high, in line with the Asian Development Bank.
Defaulted loans stood in Tk 94,313 crore towards the end of 2019, up 0.42 % year-on-year.
As of this past year, reported default loans approached 9 %, with state-run commercial banking institutions' bad loans reaching 24 %, the International Monetary Fund (IMF) said recently.
The planned Bamco would take control of the assets of the defaulted individuals or firms, manage them and advise lenders to manage and recover defaulted loans as well as advise borrowers.
If a debtor becomes sick, the corporation would the stand by position it. It would are a authorities receiver if a customer firm goes bankrupt, in line with the draft act.
The draft act would be sent to the general public administration ministry this month.
After approval by the cabinet and vetting by regulations ministry, it could be dispatched to parliament to carefully turn into law.
The status of the Bamco chairman will be add up to a deputy governor of the central bank.
The rest 14 directors would contain a senior official of the finance division, the finance institutions division, the commerce ministry, the Bangladesh Lender, the Bangladesh Investment Expansion Authority, the Insurance Production and Regulatory Authority, the National Board of Revenue and the Financial Reporting Council.
A qualified accountant or personal analyst, an academic from a finance section of a university, a representative from the Attorney General Business office, the Association of Bankers Bangladesh and the Federation of Bangladesh Chambers of Commerce and Industry would as well be on the plank.
The corporation will be empowered to sign an agreement with localized and foreign banks or finance institutions and all defaulted loans of banks, financial institutions and specialised banks that have taken licences from the central bank will be beneath the coverage of the organization.
It will be headquartered in Dhaka and would be able to open offices in virtually any part of the country and abroad. The corporation would be able to create subsidiary companies.
The decisions of Bamco will be final. The aggrieved specific or firm can appeal to the panel for reconsideration. However, they would not have the ability to sue Bamco before interesting.
The corporation would ink handles banks to realise the defaulted loans that the lenders themselves would neglect to recover. In exchange, it would get a part of the realised funds, the draft action said.
If Bamco assumes that a defaulted firm could make a turnaround if adjustments are made to the management, it would generate the change. It might be able to offer off the assets of the defaulted businesses.
The tenure of the table would be three years and the directors can't continue for a lot more than two conditions at a stretch.
The incomes or profits of the corporation would benefit from the tax holiday in the beginning for 10 years.
Ahsan H Mansur, executive director of the Plan Research Institute of Bangladesh, however, said it could be a loss-making corporation.
"The weakest banks would make make use of it to dump their poor assets and set the burden on the federal government. Why should the government consider this responsibility? Why should the public sector have responsibility for the bad debts of the personal sector?"
The government's track record in asset recovery is completely horrendous, he said.
Citing the example of scams related to Jubok, Hall-tag and Destiny, Mansur explained the companies have become non-existent but the government got little or nothing when it comes to assets.
"At least I don't know whether the government offers anything because no such facts is available."
The former official of the IMF recommended allowing establishing of private asset control companies with the federal government providing legal assistance.
Private sector companies would be able to buy distressed assets at market prices or much lower prices weighed against the organized corporation. And banks would not run to dump their bad assets onto the public asset management corporations (PAMCs), he said.
In many countries, PAMCs have already been successful, he said.
But presently there is governance composition and integrity of the people and the overall system in those countries and there is no formalisation of corruption generally there.
"I strongly desire the federal government not to choose the corporation because it would easily assume the obligations of the default loans of all banks at taxpayers' money. The government shouldn't impose this burden on the persons," Mansur added.
