Bangladesh Bank further extends loan repayment easing

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The central bank on Wednesday again extended the easing of the policy involving loan repayments to the country’s scheduled banks by their borrowers.

Borrowers would have an additional three months to repay their loan maturities on the basis of the banker-client relationship due to the resurgence of Covid-19, officials said.

As of January of last year, banks stopped classifying loans for defaulting on loan maturities on the instruction of Bangladesh Bank (BB). Borrowers will be able to clear their payments on continuing, demand and term loans by June 30 instead of March 2021 on the basis of the banker-client relationship, according to a notification released Wednesday by the Bangladesh Bank (BB).

Such loans would not be considered classified if borrowers repay their installments by June 30, 2021 instead of March of this year, he added.

Borrowers, especially bonds, could benefit from such an easing, commonly referred to as the deferral policy for loan classification, if the banks involved allowed customers, the officials added.

The BB’s latest decision came amid a new wave of Covid-19 infections in various countries, including Bangladesh.

In addition, the upcoming Ramadan and the Eid-ul-Fitr festival were seen as offering such a relaxation of the loan repayment policy, a senior official said.

“We have relaxed the policy to help businesses overcome the adverse effects of the second wave,” the central banker told FE while outlining the main purpose of the easing.

He also said the country’s overall export earnings could be hampered in the coming months, as a second wave of the disease, which hit European countries. This could affect the demand for ready-to-wear (RMG) products.

“Such an easing will help business entities to clear their employees’ salaries and festival bonuses before the Eid holiday,” the central banker noted.

As part of the easing policy, unpaid interest for 2020 on continuing loans is expected to be cleared in six quarterly installments from March 2021 to June 2022.

Such ongoing loans would not be considered classified until June 2022, if borrowers cleared unpaid interest on loans with quarterly installments, he added.

Loan accounts in which transactions can be made within a certain limit and which have an expiration date for full adjustment would be treated as a continuing loan.

On the other hand, borrowers were allowed to repay their demand loans covering both interest and principal in eight quarterly installments from March 2021 to December 2022, the notification adds.

Demand loans would not be treated as non-performing loans (NPLs) during the period under review, if the installments were paid in accordance with the requirements.

Loans that have become repayable on demand by the bank would be treated as demand loans.

On January 31, the central bank eased the repayment facility for term loans to make it easier for borrowers to make installments amid the pandemic.

All planned banks were allowed to offer a 50 percent extension to the repayment term, but the term would not exceed two years.

As part of the easing, borrowers could choose one of two options: a maximum of two years in the repayment period or a 50% extension of the remaining repayment term, whichever is greater.

The central bank had offered a facility for classifying deferred loans from January 2020 to December 2020, given the negative impact of the Covid-19 pandemic on people and businesses.

The Managing Director and CEO (CEO) of a large private commercial bank (PCB) welcomed the BB’s latest move, saying it was a good move given the ongoing pandemic, both globally and nationally.

“It will help clients, who are really facing a cash flow crisis,” the senior banker told FE.

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