Banks allowed to take unrealised interest against relaxed loan repayments into profits

The Bangladesh Bank has allowed banks to show the unrealised interests against the relaxed repayments of term loans in their profits.

"The facility has been given to enhance the banks' financial strength and shock absorbing capacity," said a circular issued by the central bank Thursday (22 December).

Earlier in June last, the government relaxed loan repayments for the industries, small and medium enterprises and agricultural sectors until December this year considering the fallouts of the prolonged Covid-19 pandemic and global economic slowdown caused by the Russia-Ukraine war. Borrowers were privileged to pay only 25-75% of their instalments for 2022.

The central bank then said it will later issue instructions regarding the unrealised interests and provision maintenance. The fresh directives came accordingly.

The latest circular said banks will have to keep a 2% additional provision against the privileged loans. In the case of loans to small and medium entrepreneurs, it will be 1%.

"Banks are now in a liquidity crisis for various reasons, including increased import costs. Besides, they are subject to paying taxes at the end of the year. If they cannot show the interests as profits, their financial condition will appear weak," a central bank official, wishing to remain unnamed, told The Business Standard.

"Considering the issues, they are given the facility," he added.

Meanwhile, the Bangladesh Bank on 18 December extended the facility in term loan repayments by reducing the payable amount to 50% from the earlier 75% of the instalments for this year.   

Bankers then criticised the central bank move saying that it would hamper the financial condition of banks.

Cash margin rules for oil and lubricant imports relaxed

The central bank, in a separate circular on Thursday, relaxed the rules of keeping 75-100% cash margins against letters of credit for engine oil and lubricant imports to help the country's power generation uninterrupted and lubricant supply normal.

"Instead of fixed rates, cash margin will be determined by the bank-client relations," it said.