Bangladesh Bank has introduced a large loan restructuring policy to stand by all businesses in trouble, Governor Atiur Rahman said. 

“The policy has been introduced not to extend undue favours to a handful of delinquent large borrowers, but to broaden the toolkit for more effective management of larger loan exposures to good borrowers in the growing economy,” Rahman said. 

The large loan restructuring policy, announced in January this year, offers a repayment period up to 12 years, discounted interest rates, downpayment in cash and repayment in quarterly instalments. 

“We have done this so the big businesses can continue their operations, thus saving thousands people from going jobless and banks from falling in fresh trouble.”

Rahman's comments came after misconceptions surfaced about the new framework introduced by the central bank in January.

Commerce Minister Tofail Ahmed had also criticised the policy, saying the offer will promote bad culture and benefit the “wrongdoers”.  

“But this is not true. We do not have records that the central bank works for a few,” Rahman said in an interview with The Daily Star on Thursday.

“Bangladesh Bank has always been pro-poor and pro-people. We have come up with a policy so everybody can take advantage of it,” said Rahman. 

Businesses have until June this year to apply for loan restructuring. But the central bank has not received any letter from any bank so far, said Rahman. 

“It shows that the conditions are very stringent. It is not a throwaway policy.”

The large loan restructuring process is intended to begin with a loan size of Tk 500 crore or higher to keep the initial number of restructuring proposals manageably small. 

Based on initial experiences and actual needs, the restructuring framework will be widened further with modifications and fine tuning in light of evolving international best practices, said the central bank. 

The restructuring of large loans of large corporate groups facing repayment difficulties due to adverse circumstances beyond their control is a routine practice in developed and developing economies.

The restructuring process allows lenders and borrowers to arrive at mutually beneficial arrangements of keeping the businesses up and running to generate income flows for repayment of the loans at realistically written-down values over realistically feasible repayment periods, said Rahman. 

It saves lenders from much larger losses at the likely break-up of borrower's business assets, thereby also saving the economy from losses in output, income and employment, he said.

Disruptions in economic activities during the prolonged spell of blockades and shutdowns in 2014 created numerous episodes of severe cash flow crunches in borrower businesses that could not be managed within the rigid down-payment and time period limits of the loan rescheduling guidelines prescribed by the central bank for normal situations, said the governor.

Bangladesh Bank relaxed its stance on loan rescheduling last year to help businesses, large and small, to keep running in the face of disruptions, in turn helping uphold output and price stability in the broader economy. 

However, dealing effectively with large exposures of banks to large business groups needs a more structured approach, said Rahman. 
A new large loan restructuring framework has been drawn up in light of the restructuring frameworks in other developing economies in the region, including India, Malaysia and the Philippines. 

The policy in Bangladesh in fact came a few years after countries around the world relaxed their monetary and loan rescheduling policies, following the 2008 financial crisis, so their business can absorb the heat and tide over the crisis and stand up again.

Rahman said there are special policies for businesses who are deemed “too weak to fail” around the globe. 

A central bank committee thoroughly studied large loan restructuring policies in other countries before it was finalised. 

India has already restructured nearly TK 200,000 crore for good borrowers, said the governor.  What could be the alternative for the central bank if it did not come up with the restructuring policy is also a question for the governor. 

“All of these loans will get defaulted, which means the businesses will be shut down. If that happens, thousands of people will lose their jobs and the banks will bear the brunt as they have to maintain a provision against the defaulted loans.”

“The scale of the provisioning will be so high that the banks would not be able to distribute profits to anybody. Their capital will erode.” “We need to save businesses, banks and jobs.”

In fact, large loan restructuring is nothing new in the country; it was done in the past, but on an ad-hoc basis.

“We have formulated a generalised policy to avoid the ad-hoc system, so good businesses can overcome tough times and continue their operations,” said Rahman. 

Even though Bangladesh Bank has come up with the policy, it will be done on the basis on banks-client relations, he added. 

“We are not going to dictate do this or that. Banks will look at the businesses and cash flows of their clients. If they are convinced that a particular loan should be restructured, they will take action to meet conditions under the policy and seek a no-objection certificate from the central bank.”

“So, it would be unfortunate if the central bank is blamed for encouraging a culture of default just because it has formulated the policy. But our policy is just the opposite, as we all along want to avoid the default culture.”

Deputy Governor Shitangshu Kumar Sur Chowdhury said they expect about 30 cases involving Tk 25,000 in loans would come up with proposals to get the opportunity under the policy.    

Borrowers who applied for loan restructuring before the policy came into being have to apply anew to the boards of their banks and get their application approved before it comes to the central bank. 

While BB's loan rescheduling and restructuring guidelines remain harshly discouraging for habitual delinquent borrowers, its March 2015 directive asked lenders to reward good repayment behaviour with rebates in interest payments.                     

Under the directive, at least 10 percent of the interest accrued has to be returned to the borrowers. 

“So, we are not only trying to stand by the defaulters, but also rewarding the good ones,” said Rahman, who took office in 2009.

At the end of 2015, the central bank will seek information from banks on the rebate they have provided in line with the BB directive.  
The chief also discussed the steps taken by the regulator to revive the stockmarket. 

“Very few money market regulators have gone all the way to support the capital market as Bangladesh Bank did. I would say we are probably the only central bank in the world which has gone out of its way to give Tk 900 crore for the small stock investors through the Investment Corporation of Bangladesh as refinances. ”

“We have allowed the over-exposed banks to clean their books gradually,” he said, adding that the central bank has always been proactive in developing the capital market. 

He said as the governor, his first job is to keep the banks intact. “This is exactly what I am doing. Other regulators should work for their own arena.”

Rahman said things have improved significantly following the rise of default loans in 2011, 2012 and 2013. “The banking sector is much more disciplined as the central bank has digitised the entire supervision process.”

“Things have stabilised, which is manifested in the stabilised inter-bank money rate. We have improved our system a lot.”