Like banks, NBFIs can now maintain loan status until Sep

The central bank has pushed back the deadline for loan status classification by non-bank financial institutions to 30 September, giving more breathing room to borrowers struggling to stay afloat because of the lengthy pandemic.

In March, taking into account the economic devastation triggered by the pandemic, the Bangladesh Bank eased rules on classifying loans, lease and advances for both banks and NBFIs, ordering them not to downgrade any loans up to June.

The deadline for banks was later extended to 30 September as the central bank forecast the economy would be enshrouded by the coronavirus-induced gloom for longer than it had imagined earlier.

Yesterday, BB extended the deadline for the 34 NBFIs as well.

Because of the coronavirus, borrowers are not being able to run their normal operations, the central bank said in a notice.

It ordered NBFIs to consider all instalments against long and short-term loans, leases and advances deferred between 1 January and 30 September.

The instalment size and numbers would have to be re-fixed in October, BB said.

The tenure of the loans would be rescheduled by pushing back the repayment period in line with the number of instalments that would remain unpaid until 30 September.

The central bank also ordered the NBFIs to refrain from charging any penalty or additional fees or commissions for the January-September period.

Banks and NBFIs will have to maintain the same credit status of a borrower as on 30 January until the new deadline.

"It is a positive move," said Arif Khan, chief executive officer of IDLC Finance, one of the top NBFIs in Bangladesh.  

The clients who could not repay instalments because of the pandemic are not wilful defaulters. Rather, their businesses have come to a standstill because of one of the worst crises in a century. 

"If we label their loans classified, they would not be able to borrow from the financial sector."

Khan said it was wise to give additional time to borrowers so that they can keep businesses up and running and pay wages and salaries to employees.

"All of us would have to give time to our clients this year. Otherwise, clients would not survive," Khan added.  

Mominul Islam, chief executive officer of IPDC Finance, another top NBFI, echoed the same.

"Customers need concessions at this critical time. This deferral would particularly be helpful for small and medium enterprises."

If customers are classified, they would not be able to secure funds from the government's stimulus packages, Islam said. 

Some customers may still not be able to make a comeback despite the concessions, particularly those who had been weak even before the pandemic.

"So, financial institutions should take the necessary precautions and set aside additional money in provisioning instead of showing profits."

IPDC Finance has set aside about Tk 30 crore, which is about half of the profits it made in the first half of 2020, for expected loan losses.

"We have done it keeping in mind the relaxation in loan classification because there would not be relaxation in the future and some customers may default on their instalment payments," Islam added.