Loan moratorium may be extended by 6 months

Bangladesh Bank (BB) is likely to extend the ongoing moratorium on loan repayments by another six months to June 30 next year in order to help businesses tackle the impacts of the coronavirus pandemic.

Multiple sources in the central bank said they are in pressure from the powerful quarters of the business community to extend the loan repayment period as the second wave of the coronavirus is going to hurt them further.

“We will decide on the extension of moratorium in a day or two,” said a senior Bangladesh Bank official.

Kazi Sayedur Rahman, deputy governor, however told Business Insider Bangladesh that they are yet to take any decision on the issue.

But bankers and experts oppose the move to offer the facility wholesale instead of specific and conditional. All sectors are not equally affected, they said.

“It [moratorium] should be industry-and-customer specific. There are many willful defaulters who are also availing the chance,” said Syed Mahbubur Rahman, chairman of Association of Bankers, Bangladesh and managing director of Mutual Trust Bank.

Business Insider Bangladesh has also talked to half a dozen senior bankers who are also in view that the moratorium should be given on some certain terms and conditions.

“This time moratorium should be conditional — not blanket,” said a managing director of another bank requesting not to be named.

Moratorium means if a borrower does not pay the loan, they will not be classified as a defaulter during the period. Usually, such breaks are offered to help businesses and individuals facing financial difficulties to carry on their works.

Accordingly, on March 19 the central bank issued a moratorium scheme on bank loan payments till September 30. Later, it was extended to December 31, 2020 as the Covid-19 pandemic continues to onslaught businesses and consumers as well.

Also, declining private sector credit growth is an indication of a slowdown in economic activities. Latest, BB data shows private credit grew only 8.21 percent in November, down from 8.61 percent in the previous month.

Bankers forecast a spike in default loans once the moratorium time is over as many borrowers are not paying their installments during the coronavirus pandemic. Accordingly, the BB has imposed one percent additional provisioning on all general loans this month, a move that according to central bankers will protect depositors’ interest.

Dr Atiur Rahman, former governor of Bangladesh Bank, said the regulator can introduce some incentives in the new moratorium, if any, for the good borrowers who want to repay loans even the pandemic time.

“Banks can offer some interest waiver for borrowers who will pay back their loans in moratorium period,” Rahman told Business Insider Bangladesh.