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Govt to bail out 'honest' defaulters, says Kamal

* 'Exit' plan to be made effective from early May * 'Loans can be repaid in 12 years' * 7.0pc interest rate on outstanding loans


FE Report | March 26, 2019 00:00:00


The government has mapped an 'exit' plan for 'honest' bank loan defaulters, Finance Minister AHM Mustafa Kamal disclosed Monday.

"We've prepared an exit plan for the honest but defaulting businessmen. The banks will charge a simple 7.0 per cent interest rate against their outstanding loans to give them an exit," Mr Kamal said.

"The loan defaulters will have to give 2.0 per cent down payment against their total loan. Then, they have to repay at simple, 7.0 per cent rate on a quarterly basis. The banks will give them 12 years' time repay to the loan," he said.

The bailout programme will be made effective in early May.

The minister unveiled the plan while talking to reporters at his ERD office in Dhaka at the end of a meeting with the Bangladesh Bank governor, finance secretary, the National Board of Revenue chairman, the financial institution division secretary and the Securities and Exchange Commission chairman.

The amount of non-performing loans reached a staggering Tk 939.11 billion up to December last year, up from Tk 743.03 billion a year ago, the central bank data showed.

Such loans now make up 10.30 per cent of the banking sector's total loans, up from 9.31 per cent in 2017.

Mr Kamal, however, said that the 'dishonest' borrowers will not enjoy the benefit of the bailout package.

The immediate past finance minister AMA Muhith, considering the business persons' contribution to the economy, had formed a committee to work out such a plan. BB governor heading the committee.

"We need the commercial banks as well as the borrowers. We have no option but to help the businessmen as they create employment, strengthen the economy and help reduce poverty," Mr Kamal said.

He said in every country, there are some exit plans for the loan defaulters, which is absent in Bangladesh.

Noting that business ventures can be unprofitable because of risk-taking, the minister said, "When they make profits, everybody becomes happy including the government. But when they face losses, the government can't do anything for them," he said.

"For this irrational things and faults, my predecessor had started work on how the government can help those businessmen. We sat today to carry forward that move," Mr Kamal said.

"Some businessmen are honest, some are dishonest here … We will offer the exit plan for honest but not wilful defaulters," he said, adding the loans will be calculated in a declining method.

"We have now created a single-digit facility for the businessmen through the decision made today," he said.

In response to a question, the finance minister said the banks will evaluate track record of businessmen through a special audit of loan defaulters.

"Only the honest businessmen will get the chance and the dishonest businessmen will face penalty," he insisted.

The defaulters will also have the opportunity to exit from the loan at any time before their 12 years' repayment period by clearing their outstanding loans, he added.

If the loan defaulters can repay the loan and continue to perform better, the commercial banks could lend them again, the minister noted.

Besides, the current lending rate at the banks will also be reduced and simplified for the businessmen so that they can conduct business smoothly, Mr Kamal said.

During the repayment period of the bailout package, if any defaulter faces further problem, he or she will be given chance to repay the loan, the finance minister explained.

"We are preparing the insolvency act. Under the act, they will get the benefit."

Under the law, the government is creating an asset management company, which will buy the banks' troubled loans.

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