Private sector fears fallout from new loan policies
Kamruzzaman Bablu :
Business leaders, including those from the BGMEA and BKMEA – the apex bodies representing garment manufacturers-have expressed serious concerns over new rules issued by Bangladesh Bank regarding non-performing loans (NPLs). They labelled the regulations as detrimental to private sector growth, warning of severe impacts on investment, employment, and the country’s macroeconomic stability.
During a recent high-level policy meeting, apparel industry leaders discussed critical challenges affecting the sector, including financial instability, gas shortages, and difficulties with banking operations.
The Bangladesh Bank recently introduced a roadmap to reduce default loans to below 8 per cent by June 2026. For state-owned commercial banks, the target is set at 10 per cent, while private banks are expected to bring their NPLs down to 5 per cent. The new policy assigns greater responsibility to shareholder directors and managing directors in recovering default loans.
BKMEA President Mohammad Hatem criticised the measures, describing them as “unrealistic and anti-business.” He warned that these stringent regulations could push businesses into default within a short time, especially if the government does not consider sector-specific capacities to repay loans.
“Most businesses will struggle to comply with this policy. Without analysing different business types and repayment capacities, these rules are unfeasible,” Hatem stated in an interview with The New Nation on Monday.
Hatem urged the government to adopt a more flexible approach to ensure businesses remain operational and capable of repaying loans. He highlighted that implementing the new NPL framework in April would significantly harm the ready-made garment sector, Bangladesh’s largest export industry.
The new rules stipulate that loans will be classified as substandard after three to six months of overdue payments, as doubtful after six to 12 months, and as bad or a loss after 12 months.
Previously, the classification timelines were more lenient, with substandard loans being those overdue for three to nine months and doubtful loans overdue for nine to 12 months.
The revised policies also include easing the loan write-off process, reducing the timeline from three years to two. This is expected to reduce default loans by 2.76 per cent, equivalent to Tk43,300 crore.
At the end of September 2023, default loans in Bangladesh’s banking sector stood at Tk1,550,000 crore-close to 10 per cent of the total outstanding loans.
Hatem and other leaders urged the central bank to reconsider these policies, citing the need to balance international standards prescribed by the IMF with the realities of Bangladesh’s business environment. They also called for sector-specific studies to fully assess the implications of the new regulations.
“Businesses need the opportunity to grow and thrive, so they can generate the revenue required to repay loans. Strangling them with impractical rules will only harm the economy,” Hatem added.