Banks to be asked to slash classified loans

Banks and financial institutions will be instructed to slash their classified loans as part of five directives to be issued by the Finance Ministry, aiming at ensuring a successful implementation of the proposed budget for the next fiscal year.

The macroeconomic wing of the Finance Division plans to forward the directives to the Bangladesh Bank for further implementation. The decision came from a pre-budget cabinet meeting held in Jatiya Sangsad Bhaban on June 13.

Slashing of classified loans and stabilising the stock market are part of the same Finance Division directives, stated in the document issued in the pre-budget cabinet meeting.
According to the budget proposal placed on June 13, loans from internal resources including the banking sector will cover 43 percent of deficit of the next fiscal year. The deficit is projected to reach Tk145,190 crore in the 2019-20 budget.

It is imperative that banks improve their health for successful implementation of the proposed budget.

Commenting on the matter, a Finance Division official on the condition of anonymity said: “The government is unwilling to take more loans from the country’s banking system without improving the classified loan situation first.

“If banks fail to provide sufficient funds to their clients, it would slow down economic growth.”

“Amid the growing fund crisis in the banking sector, the government has planned to take out more loans in the next fiscal year. As a result, regular investors could face more difficulty while taking out loans,” warned Dr AB Mirza Azizul Islam, former finance adviser to a caretaker government.

Latest Bangladesh Bank data shows that defaulted credit in the scam-riddled banking sector had skyrocketed to Tk110,873.54 crore in the first quarter of the current fiscal year, due to 31 percent increase in the non-performing loans (NPLs) in private banks.

In a bid to bring the situation under control, Bangladesh Bank extended a set of facilities to loan defaulters to provide them with more repayment options in May. However, these facilities are yet to be implemented due to a court order.

As part of the policy, defaulters will be allowed to reschedule their classified loans with a down payment of only 2 percent, instead of the existing 10 to 50 percent markup.

However, some bank officials expressed concerns that the move could result in further deterioration of the banking sector’s health. Finance Division data has also revealed that the implementation rate of budget has slowed down in the past couple of fiscal years.

The budget implementation rate was 79.12 percent in FY2016–17, dropping from 80 percent in FY2015–16 and 97.05 percent in FY2010–11.

According to sources from the Planning Division, a key reason behind the declining budget implementation rate is poor execution of the Annual Development Programme (ADP). In this fiscal year, implementation rate was only 67.97 percent of the revised budget during the last 11 months (July to May).

Dr Mirza Azizul Islam added that the Finance Division directives will not improve implementation rate situation of the budget unless the capacity of the ministry is further improved.
Meanwhile, Finance Secretary Abdur Rouf Talukder said: “The budget implementation rate will improve if the ministry and division officials simply obey our directives.”

The four other directives to be issued by the Finance Division are – taking initiatives to increase private investment, taking necessary action to implement the VAT law, boost implementation rate of mega projects, and setting up sufficient number of scanners at sea and land ports.

Electronic Financial Devices

The directives also include the implementation of the VAT Act, which stipulates the purchase, installation and commissioning of electronic financial devices (EFD).

Registered VAT operators will use EFD, which can instantly send digital record of every sale to a central server automatically. As result, there is no chance of data manipulation in the system.

The National Board of Revenue (NBR) has begun implementing the much-talked-about VAT law using tech-based devices, but it is yet to purchase the EFDs. If the government wants full EFD coverage within the next fiscal year, the NBR will need to purchase 600,000 machines, said sources concerned.

The Finance Division also directs setting up of scanners at land and sea ports across the country. This move will allow the NBR to document and scrutinise all import and export consignments.

In his budget speech, Finance Minister AHM Mustafa Kamal mentioned that all export and import consignments would be scanned before clearance to curb attempts of duty evasion.
One of the five directives has put emphasis on boosting the implementation rate of all mega projects as only the implementation of the Padma Multipurpose Bridge Project is presently satisfactory.

The Finance Division’s final directive is to complete the construction of all economic zones within the deadline and establish the proposed industrial enterprises. According to the Bangladesh Economic Zones Authority sources, a total of 21 public and private economic zones have been licensed and 11 of them are under construction in country.