Default loans: Governor finds causes and remedies

Governor of Bangladesh Bank Abdur Rouf Talukder on Thursday said long-term loans with short-term deposits are the main causes of nonperforming loans (NPL) in the country.

“It creates a mismatch (between assets and liabilities), which is a major reason to default loans,” Talukder told reporters at a media briefing about the steps the central bank has taken to ease inflationary pressure and contain the foreign exchange rate at the BB headquarters.

He also gave a way for entrepreneurs to get loans for the long term.

“We want big companies to raise long-term funds through issuing bonds. And, if banks lend short-term loans, NPL will come down significantly,” said Talukder.

The governor also said that he wants to see the secondary bond market get vibrant.

Replying to a query on the new loan rescheduling policy, he said the decision has been taken to empower banks and make bankers liable for the loans.

“When the central bank approves rescheduling of a loan, it becomes a party, which ultimately impacts our inspection work,” said Talukder.

“Rescheduling of loans is not our work,” he categorically said.

The governor also shed light on the trade and foreign exchange situation.

He said the trade gap in July has reduced significantly and an increase in inward remittances gave the economy breathing space. “If the trend continues, the economy will be stable soon,” Talukder said.

He said import in July was $6 billion and exports and remittances earned $6.1 billion.

Talukder, a former finance secretary, started his new innings as the governor of Bangladesh Bank in the second week of July. But the time is very challenging as the economy is facing multiple setbacks — from soaring inflation to exchange rate volatility and depleting foreign exchange reserves.