Bangladesh Bank (BB) is “cautiously” reviewing BAB’s request to relax repayment tenure for term loans, said a central bank official.
“The central bank will decide about the BAB request after an analysis of relevant issues,” said BB spokesman Serajul Islam.Bangladesh Association of Banks (BAB), an organization of directors of private banks, made the request in a letter to the central bank recently. The directors of the country’s private banks have urged Bangladesh Bank to extend repayment tenure for term loans and convert working capital to term loans.
In the letter, BAB Chairman Nazrul Islam Mazumdar wrote, “The country's businesses have not yet recovered from the impacts of the corona virus pandemic. Most of the businesses are currently able to utilize 50 percent or less of their production capacity. The average sales of the products both in local and global markets have fallen sharply due to the pandemic.”
The BAB also requested the BB to reschedule working capital and demand loans by stretching the repayment tenure to three years from the existing one year.
In addition, the central bank has been requested to ask banks not to take any down payment while rescheduling the working capital.
The letter said, “The purchase orders of garment products have come down by 30-40 percent. In this situation, the BAB demands to extend the relaxed loan repayment facility for another three years.”
Meanwhile, the central bank eased the repayment facility for term loans on January 31 to help the borrowers pay instalments as the pandemic persists.However, according to different banks, only around 25 percent of borrowers availed the loan repayment moratorium facility, which the regulator offered to tackle the impacts of the Covid-19 pandemic on businesses and individuals.
Banks usually take down payment spanning from 15 percent to 30 percent in order to regularise working capital and demand loans.
A demand loan is a borrowing instrument that allows lenders to recall the loan on a short notice. Once notified, borrowers must repay the full amount of the loan and any associated interest.
This arrangement also allows the borrower to repay the loan at any time without an early repayment penalty.
Working capital is another short-term loan that banks give out to borrowers to operate their business.
The repayment tenure of both working capital and demand loans is a maximum of one year.
Earlier, BB Governor Fazle Kabir met in a meeting with top executive of banks and discussed latest development of loan disbursement under stimulus packages. The banker suggested the governor not to increase the loan moratorium facility in order to stop willingly loan defaulter tendency.
They said that banking sector has been in a bad state of affairs for the last couple of years and the ongoing business slowdown caused by the coronavirus pandemic has exacerbated the situation.