Cenbank rejects request to delay new loan overdue rules

The Bangladesh Bank has rejected a request from bank chairmen to defer by six months the implementation of the new rules that shorten the time for term loans to be classified as overdue.

The Bangladesh Association of Banks (BAB), a platform for bank owners, made the request during a meeting with Governor Ahsan H Mansur on 18 September, citing prevailing economic challenges as the primary reason for their appeal.

Chairmen of various banks participated in the meeting led by BAB Chairman Abdul Hai Sarkar, who also serves as the chairman of Dhaka Bank. Earlier, BAB had made this request in a letter sent to the central bank on 31 July.

Husne Ara Shikha, spokesperson for the Bangladesh Bank, told The Business Standard, "The central bank's previous decision remains in effect, and we do not currently find their request to be valid. They have already been granted ample time."

The central bank recently amended the rule, stating that starting 30 September 2024, loans would be considered overdue three months after the due date, and from 31 March 2025, loans would be considered overdue the day after the due date.

The BAB had urged the central bank to postpone the implementation of this new rule until 31 March 2025.

Before a bank loan becomes classified as "defaulted," it first goes through a stage called "overdue." When loan instalments are not paid on time, the loan is considered overdue. If the overdue status persists, it eventually leads to the loan being marked as defaulted.

Many chairmen do not agree with the BAB request

Tanjil Chowdhury, chairman of Prime Bank, told TBS, "Both BAB and the Association of Bankers, Bangladesh (ABB) should support the new government's proposed reforms in the financial sector."

"Otherwise, there will be no change in the approach to addressing the challenges faced by weak banks. Furthermore, while the Bangladesh Bank claims it will support struggling banks with the assistance of stronger ones through guarantees, I am uncertain about the legal feasibility of this," he added.

However, any actions taken regarding the merger or acquisition of weak banks would be a separate issue, said Tanjil, also an executive committee member of the BAB.

A senior central bank official who attended the BAB meeting with the governor said banks have traditionally considered loans overdue only after six months from the payment date. However, this timeframe has recently been revised to align with international practices.

The overdue period is a significant condition imposed by the IMF for loan agreements. Therefore, if the new deadline is officially altered, it could jeopardise the country's chances of securing IMF loans. Moreover, the central bank has provided ample time for bank owners and traders to adjust. As a result, the central bank has decided against changing the guidelines, the official added.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, told TBS, "Only banks understand how to effectively engage with their customers. Banks thoroughly verify all information when granting loans, so these matters should be left to the banker-customer relationship."