The Bangladesh Bank on Monday introduced an exit policy for loan defaulters after its various efforts to curb the rising tide of bad loans in the country鈥檚 banking sector failed.
The central bank issued a circular with immediate effect, outlining that if recovery prospects are deemed minimal or in case of closure of project or business due to unavoidable circumstances or in case of closure of project or business by the borrower, the exit facility can be granted for the purpose of recovery of such classified loans.
Loans under this exit policy can be repaid in one or multiple instalments, with a general repayment period not exceeding two years, extendable by one year for valid reasons.
Borrowers must apply for the exit facility with a minimum down payment of 10 per cent of the outstanding loan amount in cash. The bank must resolve the application within 60 days.
The bank鈥檚 board of directors or executive committee must approve the exit facility.
However, for principal loans up to Tk聽10 lakh, the decision-making authority can be delegated to the bank鈥檚 management, it said.
This policy aims to reduce the defaulted loans, which surged to a record high of Tk聽1,82,295 crore at the end of March 2024, up from Tk 1,45,633 crore in December 2023, Tk聽1,20,656 crore in December 2022 and Tk聽1,03,273 crore in December 2021.
The BB circular stipulated that this policy will be considered the minimum standard for exit facilities.
In line with the directive, banks must develop their own exit policies, approved by their board of directors, and must not include conditions more lenient than those specified in this circular.
Regarding interest waivers, the existing instructions and subsequent circulars must be followed, transferring waived interest to a separate blocked account.聽 This will only be considered fully waived after the complete repayment or adjustment of the loan, the circular said.
The pre-exit debt status for individuals or institutions or companies must remain the same as before the exit until the loan is fully repaid.
Defaulters will continue to be identified as such according to existing regulations, and their credit information will be reported to the Bangladesh Bank鈥檚 Credit Information Bureau based on previous classifications.
However, if the exit facility is provided for a regular loan, it must be reported as an exit.
This facility will not be considered rescheduling or restructuring. Borrowers using the exit facility will not be eligible for new loan facilities until the loan is fully repaid or adjusted. In the case of written-off loans, existing guidelines must be followed.
Proper provisioning must be maintained against the loan, and collateral must not be released before the loan is fully adjusted.
However, if the bank, customer and buyer agree, the mortgaged property can be sold through a tripartite agreement to settle the loan.
If the borrower fails to repay under the exit facility, the bank will take necessary legal action to recover the loan.
Islamic Shariah-based banks can also adopt these guidelines for recovering or adjusting their regular and classified investments.
