Bangladesh Bank returns to stricter loan standards

As per reports, under the revised rule, term loans become overdue after three months, down from six, from the fixed expiry date. Subsequently, loans default after six months instead of nine.

This initial phase takes effect from September 30, 2024, with a subsequent phase starting March 31, 2025, tightening overdue criteria further.

Additionally, banks are barred from increasing borrowers’ instalment sizes to alleviate rising loan costs even as they are urged to extend tenure for pre-July 2023 loans, offsetting increased costs due to rising lending rates.

Mustafa K Mujeri of the Bangladesh Institute of Development Studies meanwhile applauded the move by the central bank of Bangladesh, suggesting it incentivises timely payments.

However, he advocated for bank-client discretion in determining instalment amounts.

Dhaka Bank’s MD and CEO Emranul Huq on his part supported shorter loan durations, emphasising quicker recovery, and reduced non-performing loans (NPLs).

He advocated for unchanged instalment amounts, prioritising manageable payments aligned with clients’ financial stability.

The lending rate, previously capped at 9 per cent soared to 13.55 per cent post-introduction of the SMART lending rate formula.

The Bangladesh Bank, however, apprehends the stricter loan classification rule could inflate non-performing loans significantly.

ALCHEMPro News Desk (DR)