The exit facility is not considered a debt rescheduling or restructuring and the borrower will not be eligible to obtain new financing until the existing loan is repaid in full.
For the first time, Bangladesh Bank has introduced an exit policy allowing defaulting borrowers to repay their loans for up to three years with a 10 percent down payment, aimed at keeping liquidity flowing and reducing bad loans in the banking sector.
According to a central bank circular issued today, the exit policy will not be considered a debt rescheduling or restructuring and borrowers will not be eligible to obtain new financing until their existing loans are repaid in full.
Banks will decide the tenor of loan instalments and allow borrowers to repay the outstanding amount in multiple installments within three years, the financial markets regulator said in a circular and directed bank directors to implement the policy.
According to central bank officials, in the absence of a policy, banks were following different norms regarding exit mechanisms for recovery and adjustment of loans.
Bangladesh Bank officials said even if defaulting borrowers avail the exit facility, they will continue to be classified as defaulters until the entire loan is repaid. Banks will annotate the exit status next to the status of these customers (categorised into three types of non-performing loans) in the credit information bureau.
“Defaulted borrowers will get some benefit through this exit facility. If they can repay 10 percent of the defaulted amount, they can repay the remaining amount over three years,” a managing director of a private bank told TBS.
He also said that earlier there was a one-time loan termination policy for senior borrowers but many borrowers terminated their loans under this facility without repaying the full amount, resulting in a significant portion of these loans remaining unrepaid.
Another Bangladesh Bank official said the policy would benefit borrowers of all sizes. Under the policy, both regular and defaulting borrowers can avail exit facilities.
“This policy has been a long-term plan for us. Earlier, each bank followed different rules. Now, with a specific policy in place, customers who exceed the specified limit will not be able to avail of this benefit,” he added.
According to the circular, normal loan termination facility may be provided in case the project or business is closed due to reasons beyond its control or the borrower decides to close the project or business.
Banks will process the application within 60 days of receiving it. Termination of loans requires approval from the board of directors of each bank, but bank management has the power to allow termination of loans up to Tk 1 million.
Under this scheme, interest may be waived as per the Central Bank's policy. However, if the loan is not repaid within the stipulated period, the waived interest will accrue and the termination scheme will be cancelled. Recovery of the debt secured under the termination scheme will be subject to the directions of the Central Bank.
Adequate reserves must be maintained against the loan and any security taken against the loan cannot be released until the loan is fully adjusted. However, the loan can be adjusted by the customer taking out a negotiable loan against the bank and selling the mortgaged property.
According to Bangladesh Bank data, the banking sector's total loans stood at about Tk 16.41 trillion as of the end of March 2024. Of this, over Tk 1.82 trillion was in default, which is 11.11 percent of the total loans.
In 2019, the central bank announced a special policy for one-time withdrawal of loans for customers with loans of more than Tk 5,000 crore. According to the policy, the loans will be repaid in successive years of 10 years with a one-year grace period and will require a simple interest rate of 9% and a down payment of 2%.