Bangladesh Bank orders 10 percent interest rebate for ‘good’ borrowers

On top of affording loan defaulters the opportunity to repay, the Bangladesh Bank has announced incentives for ‘good’ borrowers.

Those who were unable to pay but can ‘adequately justify’ their situation will be allowed to pay off the loans with a 2 percent down payment on the loan amount and 9 percent interest over 10 years.

And the banks will have to give ‘good’ borrowers 10 percent rebate from total interests on their loans.

The central bank announced the decisions in circulars on Thursday.

Finance Minister AHM Mustafa Kamal had earlier revealed the repayment scheme for loan defaulters.

Now the Bangladesh Bank announced the incentive for ‘good’ borrowers as well.

They will get the rebate automatically every year and may also apply for extended loans if they pay instalments regularly.

The banks will take into account the borrowers’ repayment performance for a year from Oct 1 to Sept 30.

The ‘good’ borrowers will get certificate from the banks that will also have to publish success of top 10 of these businesses with photos in their annual report.  

For the loan defaulters, the Bangladesh Bank says they must apply for inclusion in the repayment scheme within next three months.

The businesses that had their loans classified as bad as at Dec 31 last year can apply for the scheme and the decision on their inclusion will depend on banker-customer relations.   

The facilities under the scheme will be cancelled if a loan defaulter fails to pay two of nine monthly or three quarterly instalments.

The defaulters will be able to apply for new loans once their old loans are rescheduled under the scheme.

But failure to repay the new loans will lead to cancellation of the facilities they are receiving under the scheme.

In a special policy on debt rescheduling and “one-time exit”, the central bank said it announced the scheme to collect loans classified as bad in order to keep the flow of loans normal into productive and other sectors because many borrowers were unable to repay regularly due to losses for different reasons.

The central bank issued loan rescheduling policy in 2015, regularising Tk 150 billion in credit taken by 11 industrial groups, but only two of these groups have been repaying.

According to latest data, total default loans in the banks in Bangladesh rose from about Tk 225 billion in the beginning of 2009 to over Tk 1.3 trillion by the end of 2018, which is more than a third of the national budget for 2018-19 fiscal year.

After taking charge as finance minister in January this year, Kamal vowed to cap the rise in default loans.

The central bank in February came up with an easy way to show the mounting default debt issue look less bad than what it is now by relaxing the policy for loan write-off.

Kamal unveiled the new scheme for the loan defaulters, drawing huge criticisms. 

“We are giving relief to those who are trying to be good loan takers,” the finance minister had said.

He had also said the government would take measures like passage of a new law to free loan defaulters from jail.

“The country won’t be functioning if all the businessmen are sent to jail for default loans,” the finance minister had said.