Wilful defaulters barred from loan waiver

Bangladesh Bank yesterday barred wilful defaulters from getting interest waivers on loans from banks, a first of its kind directive that comes amid a riding trend of defaulted loans.

Non-performing loans (NPLs), or soured loans, went up 16.38 per cent year-on-year to Tk 103,274 crore in 2021.

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The central bank said unscrupulous persons who took loans through forgery would not be allowed to get the support from lenders.

It also specified in detail as to which methods would be followed by banks to waive interest.

Before the circular, banks could waive all types of interest of borrowers but the latest circular has imposed an embargo on such activities as Bangladesh Bank has set a number of rules in this regard.

As such, banks are not permitted to waive the principal amount of the loans under any circumstance.

The funds that have already been transferred to the income segment of banks cannot be waived either.

The management of respective banks will not be able to waive more than Tk 10 lakh of the interest on a loan without prior approval from its board of directors.

Banks will have to manage their cost of fund of loans while waiving any amount of interest.

The cost of funds refers to how much banks spend in order to acquire money to lend to borrowers.

However, the central bank said banks would be allowed to avoid the instruction of ensuring cost of fund in some cases.

Cost of fund will not be calculated for projects that have been closed for three years in a row.

If banks do not get back the default loan despite completion of all legal procedures, the formula of cost of fund can be sidestepped.

Banks usually face difficulties to return their fund if borrowers expire.

They also face difficulties to recover loans if borrowers face natural calamities, such as pandemics and riverbank erosion. So, banks can consider the issues for relaxation of cost of fund.

Internal audit departments of banks have to conduct audits to ensure the rationality of reduction of cost of fund.

Lenders also have to take opinions from their respective heads of internal control and compliance to this end.

If directors of banks and their family members apply to enjoy the waiver, lenders have to take prior permission from the central bank.

Banks will have to look into their financial health cautiously before waiving interest such that they can understand whether it is good or bad for them.

Every bank will have to draw up the guidelines or a loan waiver policy in accordance with the Bangladesh Bank circular.