The central bank has refuted the concerns of the banking sector over a jump in non-performing loans (NPL) due to enforcement of the new rules on classification, provisioning and rescheduling of loans.

“NPL may go up to 8.5 percent from around 6.5 percent now due to the new loan rules,” SK Sur Chowdhury, deputy governor, told The Daily Star, quoting an impact assessment study on the new rules.

Bangladesh Bank (BB) carried out the study following bankers' concern that the banking industry would negatively be affected by the new rules that became effective from July 1.

Under the new provisions, an ongoing loan operation will be classified in the event of non-repayment of any installment within three months instead of earlier-fixed six months.

The base for provisioning has been set at a minimum level of 20 percent of the outstanding balance of the credits, while strictly limiting the rescheduling facility of any default loan, up to three times.

According to new rules, non-repayment period against a term-loan for more than two months will be treated as a "specially mentioned account" and the non-repayment period between 3-6 months will be classified as substandard. If the non-repayment period is more than six months, it will be treated as default loan.

The Association of Bankers Bangladesh, a forum of chief executive officers, requested the BB to extend the deadline for the implementation of its new instructions on loan classification and provisioning up to January 1, 2014, instead of July 1.

Otherwise, the bankers said the NPL would jump in the next quarter. Some top bankers said the NPL would double or more due to the new rules.

Not only bankers, manufacturers and exporters also expressed their concern saying that the new loan rules would hurt their industries. But the central bank does not agree with the bankers with their concern.

“Banking industry may face trouble for the time being, but in the long run it will establish credit discipline,” said the BB deputy governor.

Chowdhury said some people in Bangladesh take loans from banks with an intention not to pay it. These borrowers get defaulted and reschedule their loans to get new loans, he said.

“We want to stop this bad intention of borrowers,” he said.

The Daily Star/Bangladesh/ 25th July 2012