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BB launches probe into stimulus loans

SIDDIQUE ISLAM | August 03, 2021 00:00:00

A probe gets underway to ascertain whether the Covid stimulus lending follows proper manner and the use of the money from the packages is done for the right purposes, as some faults were already found.

Officials said the central bank decided to probe into the loans under mainly two major stimulus packages worth Tk 600 billion to ensure proper use of the subsidised credits by the end of this month.

And the Bangladesh Bank (BB) has already asked all the scheduled banks to submit statements mentioning the names and addresses of the borrowers along with recovery status within five working days.

Besides, officials of eight Departments of Banking Inspection (DBI) of the central bank along with its branch offices across the country have been directed to take preparations for conducting a special inspection into the lending operations across the country.

The decisions were made Sunday at a high-level meeting of the central bank at its headquarters in Dhaka with BB Deputy Governor Kazi Sayedur Rahman in the chair.

"We've taken the latest measures to ensure the end-use of subsidised loans as per our policy," Md Serajul Islam, a spokesperson for the central bank, told the FE.

Mr Islam, also a BB executive director, said the officials concerned at DBI, both at the headquarters and branch offices of the central bank, had already been asked to get ready for the countrywide oversights function.

The officials, however, said the BB inspectors would start their inspections into such loans after receiving statements from the banks.

"Yes, we've received a letter in this connection from the central bank today (Monday)," a senior executive officer of a leading private commercial bank (PCB) told the FE in reply to a query.

The PCBs will submit the statement on such loans to the department concerned of BB within the stipulated timeframe, according to the private banker.

In April 2020, under government aid plans for businesses and households amid the corona pandemic, the central bank introduced a Tk 400-billion worth of financial bailout for large industries and service sectors to offset the adversities hitting hard their businesses.

As per the BB policy, the package will be continued for three years from April 14, 2020, with borrowers enjoying interest subsidy at 4.50 per cent for maximum one year.

Actually, the borrowers will pay interest at 4.50 per cent out of the normal 9.0 per cent under the package. The remaining half or 4.50 per cent will be paid by government as interest subsidy to the banks concerned.

The central bank had initially allocated Tk 300 billion for the package. It later expanded the size of the fund to Tk 400 billion, as the coronavirus, SARS-CoV-2, continued its invasion worldwide.

Furthermore, the BB had also announced another stimulus package worth Tk 200 billion for the cottage, micro, small and medium enterprises (CMSMEs) on the same grounds.

Under the aid plan, all types of borrowers will be entitled to enjoy interest subsidy at 5.00 per cent for a period of maximum one year.

During the period, the borrowers will pay the interest at 4.00 per cent out of the 9.0 per cent, under the package, while the remaining 5.00 per cent will be paid by the government as interest subsidy to the banks and non-banking financial institutions (NBFIs) concerned.

The BB's latest moves came against the backdrop of issuance of a forewarning as part of a precautionary measure to avert possible 'asset bubble' with a note for the banks to check diversion of such funds into unproductive sectors.

The commercial banks have also been instructed to ensure right end-use of the funds through conducting necessary inspections by their internal audit departments.

Meanwhile, the central bank had found a portion of funds under the packages being diverted and used for unproductive purposes instead of proper utilization in the selected respective sectors.

In some cases, borrowers have adjusted his/her other credits with loans under the low-cost funds, the BB said in its two-page letter conveyed to the banks on July 25.

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