A few prayers for restructuring large loans worth Tk.146.58 billion (14,658 crore) from 10 large borrowers are now under scrutiny of the country's central bank. More than one-third of the amount belongs to one large corporate house.
The Bangladesh Bank (BB) on January 29 this year had announced a policy guideline for restructuring large loans, setting a deadline, June 30, 2015, for the banks concerned to send the applications, received from their borrowers for large loan restructuring, to it (BB) along with their (banks) recommendations.
Though large loan restructuring (LLR) or corporate debt restructuring (CDR) mechanism is being practised in a number of countries including neighbouring India, it had suddenly become a subject of discussion in the country's financial sector when a section of the media published reports in the latter part of last calendar year on the 'lobbying' with a number of banks by a big corporate house for such a facility. The business house has a tainted image as a bank borrower.
So, when the central bank announced the large loan restructuring policy early this year, there was confusion over the origin of the move involving the CDR facility. Actually, who did want the facility, banks or borrowers? Â
The business houses that have applied for the LLR facility include the Beximco Group (Tk.56.43 billion), Jamuna Group (Tk.16.84 billion), Tharmex Group (Tk.6.67 billion), Sikder Group (Tk.18.38 billion) Abdul Momen Group (Tk.5.76 billion), Keya Group (Tk.9.14 billion), SA Group (Tk. 8.33 billion), BR Spinning (Tk.5.93 billion), Ennontex Group (Tk.10.94 billion) and Ratanpur Group (Tk.8.11 billion). Nearly 80 per cent of the funds sought for rescheduling by the Beximco belong to the public sector banks.
It is understood when the large business house in question mooted the idea of loan restructuring, others having troubles with repaying bank debts followed suit.
However, there is nothing wrong with the corporate or any other client seeking the loan restructuring facility which is a tool for assisting the distressed section of the economy.
But restructuring is supposed to be considered under certain specific conditions. The facility is extended only in situations that are beyond the control of the borrowers. Such a facility cannot or should not be extended to a borrower whose mismanagement or errant behaviour is largely responsible for creating all the troubles.
The objective of the facility has been to ensure timely and transparent mechanism for restructuring corporate debts of viable entities facing problems outside the routine procedures that the banks usually offer to their clients.
The framework focuses on the protection of viable entities affected by certain external and internal factors with a view to keeping the losses to the creditors and other stakeholders to a minimum level.
So, while extending the facility the regulator and the banks concerned will have to examine the viability of the accounts seeking the LLR facility. Besides business prospects, the relevant agencies do need to read well the track records of the borrowers concerned.
There are reasons to be suspicious about the viability assessment by the lenders in the context of Bangladesh where it is hard to rule out the possibility of using connections, political or otherwise by a few borrowers.
It could be that some of the restructuring proposals that have been already sent to the central bank by the lending banks for 'no objection' seal do not deserve any forbearance on the part of the banking regulator, given the past track records of the borrowers concerned.
While the CDR facility is available in many countries, it would not be out of place to look at the recent developments around it in neighbouring India where the corporate culture, in terms of servicing debts, is not very much different from that of Bangladesh. However, the situation in India, as far as the non-performing assets of the banking sector are concerned, is better than that of Bangladesh.
The CDR was introduced in India in 2001 and the volume of outstanding restructured loan in that country stood at about Rs.2.9 trillion in May last. But a substantial part, valued at Rs. 570 billion (US$8.9 billion), of the restructured loans has turned bad until that time.
One financial consulting firm has dubbed the restructured debt, the large part of which belongs to the state-run banks, as a 'ticking time bomb' for Indian public sector banks.
The situation with the CDR has turned so sour in India that its central bank, the Reserve Bank of India (RBI), in the first week of last month issued a new norm for strategic debt conversion, which is also known as 'debt-for-equity' swap, that allowed the lenders the right to convert their outstanding loans into a majority equity stake if the borrowers failed to meet conditions stipulated under the restructuring package. Allowing loan conversion has now become a precondition for all debt-restructuring deals. Â
So, it will be prudent on the part of the BB and the banks to see things in proper perspectives before jumping into an uncharted territory. Otherwise, it could exact a heavy price from the banking sector in the near future and also in the long run.
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What’s the rush?
Shamsul Huq Zahid | Published: July 15, 2015 00:00:00 | Updated: November 30, 2024 06:01:00
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