When the country’s banking sector is struggling with record-high non-performing loans (NPLs), the Bank Company (Amendment) Bill 2023 was passed in parliament with the provision that a company can get loans even if its sister concern remains a defaulter.
Economists and experts have strongly opposed the amendment and said that this will encourage loan defaulters more.
Any sister concern or individual of any group is not a wilful defaulter if it is authenticated by Bangladesh Bank (BB) and if there are logical grounds for defaulting the loan by an individual or entity or company, then the mentioned person, entity or company will not be a defaulter, says the provision in the proposed bill passed on Wednesday.
Economists said this is not a wise decision because the country’s banking sector is facing massive challenges, including a high amount of bad loans.
At the end of March this year, the NPLs stood at Tk 1,31,620 crore or 8.80 per cent of the total disbursed loans, marking a significant 16.02 per cent increase year-on-year (YoY), according to the latest BB data.
March’s figure is the second highest since Bangladesh achieved independence in 1971.
The NPLs in the September quarter of last year had hit an all-time high of Tk 1,34,396 crore, despite regulatory forbearance.
Former BB governor Salehuddin Ahmed told the Business Post that this is not a wise decision. Borrowers do not even want to repay the bank loans now and if they get this facility, the number of loan defaulters in the banking sector will only increase.
He said, “The fund diversion will increase when it’s implemented as now we see that a company takes a loan and then diverts it to other sick industries.
“This is a mega discount for loan defaulters. The government is encouraging the loan defaulters through this amendment.”
Zahid Hussain, the former lead economist at the World Bank’s Dhaka Office, said that the amendment is contrary to the idea of controlling the NPLs and bringing discipline to the banking sector.
The previous law was made for ensuring checks and balances to reduce the number of defaulters, he said, adding that now a defaulted company will enjoy facilities indirectly through its sister company.
However, the former chairman of the Association of Bankers, Bangladesh, Anis A Khan, welcomed the move, saying good companies cannot be deprived of loans if their sister company defaults.
The Bank Company (Amendment) Bill 2023 also allows the directors to remain in their position for 12 years consecutively instead of nine years.
Zahid said that this would work against the measures to bring corporate governance into the banking sector.
Finance Minister AHM Mustafa Kamal moved the bill in parliament and it was passed by voice vote on Wednesday. However, opposition Jatiya Party MPs staged a walkout, protesting this provision’s inclusion.
The opposition MPs also protested against the way of the inclusion of the provision, which was not in the original Bill. It was later inducted in an amended proposal by the ruling party’s Tangail MP Ahsanul Huq Titu.
