BB clarifies on written off loan

The Bangladesh Bank has revised its interest rate waiver guideline in order to clarify on written-off loans.

The interest rate waiver guideline will also be applicable for the written-off loan, said the Bangladesh Bank in a clarification on Tuesday.

But in a circular issued on April 21, the central bank didn’t mention about the waiving interest of written-off loan.

In order to remove the confusion, the existing guideline also needs to be applied on written-off loans, said the circular.

The interest shown as income in banks’ books cannot be waived, which was only applicable for all banks. But now it’s only applicable for state-owned and specialised banks, according to the circular.

As a result, large companies that have defaulted on loans taken from the state-owned banks will be benefitted, analysts say.

The state-owned banks have already been troubled by defaulted loans worth thousands of crores taka and interest on defaulted loans cannot be shown as income, they said.

Former Association of Bankers Bangladesh (ABB) president Mohammed Nurul Amin told The Business Post, “It seems that this policy was made just to benefit them (big borrowers).”

Earlier, the BB tightened the existing guideline to bring disciplines in the banking sector as it noticed that many banks were involved in giving interest exemption to their clients bypassing the existing policy.

Usually, banks waive the interest in a hard time such as a natural disaster that hit businesses.

Banks will not waive the principal amount of the loans under any circumstances. The financial institutions will also not allow any waiver to the loans created by wilful defaulters, according to the BB.