RESCHEDULING LOANS : IMF criticises govt’s policy

The International Monetary Fund has criticised the policy of allowing errant borrowers to reschedule loans, saying such policies only helped in improving the balance sheets of banks artificially.
About four and half percent of outstanding loans as of end-2014 were rescheduled following a temporary relaxation of loan rescheduling guidelines between December 2013 and June 2014, said IMF in a review report released last week.
In January 2015, Bangladesh Bank again allowed banks to restructure loans above Tk 500 crore under the relaxed rules until June 2015.
The IMF said, ‘these policies artificially boost bank balance sheets but do not correct the underlying weakness in lending practices.’
Finance minister AMA Muhith told the Parliament on June 27 that the total amount of default loans of 56 banks operating in Bangladesh was over Tk 54,657 crore, almost half of that, or Tk 22,654 crore, was with state-owned commercial banks Agrani, Janata, Rupali and Sonali.
The amount of default loans in three specialised public banks – Bangladesh Development Bank, Bangladesh Krishi Bank and Rajshahi Unnayan Bank – is over Tk 7,417 crore, he added.
BB former deputy governor Ibrahim Khaled said growing bad loans had a major adverse impact on the country’s economy. He said non-performing loans directly affected the profit of the banks and kept the lending rates high.
The IMF observed that some progress had been made in reforming the state-owned commercial banks. However, balance sheets only reflect improvements with a lag: about one-third of SOCB loans are under stress once adjustments are made for rescheduled loans, it said.
Centre for Policy Dialogue executive director Mustafizur Rahman said the banking sector was hamstrung because of series of loan scandals including the swindling of Tk 3,500 crore by Hallmark Group from Sonali and questionable loan worth more than Tk 4,500 crore offered by board of directors led by former BASIC Bank chairman Abdul Hye Bacchu.
He said the government had been ignoring an urgent need for overall reform in the country’s banking sector for long.
The IMF said regulatory breaches by the state-owned commercial banks or other banks should be penalised. The authorities should continue to implement prudential limits on banks’ exposure to the capital market by July 2016, it added.

- See more at: http://newagebd.net/175850/rescheduling-loans-imf-criticises-govts-policy/#sthash.fVL5cZ6Z.dpuf