Business News

FLAWED CORPORATE GUARANTEE RESULTS IN DEFAULTED LOANS

Bankers and academics at a discussion on Wednesday stressed the need for distinguishing rightly ‘corporation’ and the ‘business group’ in Artha Rin Adalat (money loan court) law to help secure bank loans against corporate guarantee.  They blamed the loopholes in corporate guarantee and the opaque definition of corporate and business group in the law for the rising volume of non-performing loans. They said the banks cannot provide loan only on mortgage as land or other conventional mortgage is over-priced.

The banking professionals said financial reporting system and the central bank’s Credit Information Bureau (CIB) should be strengthened so that banks can rely on reports and provide loans against corporate guarantee.  The bankers said relevant laws and clauses need to clarify how to encash a corporate guarantee in case of failure of a corporate borrower to repay bank loans. The fear was expressed at a roundtable discussion organised by Bangladesh Institute of Bank Management (BIBM) in Dhaka.  A team led by BIBM Assistant Professor Md. Mosharref Hossain prepared and presented a paper titled ‘Corporate Guarantee: Does It Work in Recovery of Loan” at the roundtable.  Speaking at the programme, former Supernumerary Professor of BIBM Yasin Ali said the definition of business group should be included in the ‘Artha Rin Adalat Ain’.

“Banks have to keep excess provisions against defaulted loan, which directly affects the net profit. Similarly, with increasing NPLs, Risk-weighted Assets (RWA) would increase; which, in turn, would create pressure on maintaining the regulatory capital,”. Director general of BIBM Md. Nazimuddin said there is everything in the law, bankers should only follow due diligence. He said this study will help explore the enforceability and effectiveness of corporate guarantee in recovering loans in Bangladesh.

Source: The Financial Express, 18.07.2019

Link: http://today.thefinancialexpress.com.bd/first-page/flawed-corporate-guarantee-results-in-defaulted-loans-1563384879



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