BB’s policy relaxations cut NPLs to Tk 94,440cr at Sept-end

Staff Correspondent | Published: 23:23, Nov 30,2020


Defaulted loans in the country’s banking sector have dropped by Tk 1,676 crore in the July-September quarter of 2020 mainly due to the regulatory forbearance initiated by the central bank following the coronavirus outbreak in the country.

The latest Bangladesh Bank data showed that the amount of defaulted loans dropped to Tk 94,440 crore at the end of September this year from Tk 96,116 crore three months ago.

The volume of defaulted loans was Tk 22,481 crore in 2009.

Total outstanding loans in the country’s banking sector dropped to Tk 10,66,626 crore at the end of September this year.

As a result of the decline, the amount of defaulted loans in the country’s banking sector dropped to 8.88 per cent in September from 9.16 per cent three months ago.

Officials of the central bank said that the fall in defaulted loans in the banking sector in the July-September quarter was mainly due to the BB circular which barred the banks from downgrading classification of any loans till December 31 this year.

Even though a large portion of the outstanding loans in the banks had become irregular since the April this year, those loans remained unclassified in the financial books of the banks.

Under the central bank’s policy introduced after the coronavirus outbreak, the banks have been upgrading classification of loans which turned regular during the January-September period this year, resulting in a decline in the total amount of classified loans.

Regularisation of some loans by way of rescheduling also contributed to lowering the volume of defaulted loans.

Experts and researchers, however, have predicted that the volume of defaulted would rise once the period of regulatory forbearance was over.

Policy Research Institute executive director Ahsan H Mansur told New Age on Monday, ‘Usually, some loans in the banks turn default while some become regular. Due to the bar on downgrading loans even after they become irregular, it’s very obvious that the figure would decline as some loans become regular naturally once the borrowers start repayment.’

He, however, said that the risk factor for the banks had risen much higher.

Speaking on future measures, Mansur said, ‘Considering the existing business and recovery situation, I would say that the policy relaxation has to be extended further.’

Instead of making the facility general for all, the central bank may come up with a sector-wise and need-based policy facility, he said.

Defaulted loans in the banking sector reached an all-time high of Tk 1,16,288 crore at the end of September in 2019.

However, the figure dropped on paper following the government bailout to defaulters that allowed the borrowers to regularise loans by paying a meagre 2 per cent down payment, much lower than the regular 15-per cent down payment required to regularise loans.

In a recent research paper on ‘NPL in Banks of Bangladesh: Macro Economic and Bank Specific Perspective’ published by a Bangladesh Institute of Bank Management team on November 25, the researchers said that defaulted loans in the country’s banking sector would surge further as defaulters would now use the coronavirus outbreak as a pretext to not repay their bank debts on time.

The researchers in the paper said, ‘In order to facilitate business people and combat the economic fallout of coronavirus, Bangladesh asked banks not to downgrade any loan over a failure to pay instalments in the January-September period.’

‘There are two fold challenges faced by the banking sector — high defaulted loans and cutting down the lending rate to single digit before the outbreak of the coronavirus,’ the paper said.

If defaulters needed 10 years to repay their debts when they faced no crisis as big as the coronavirus, they now have a bigger excuse to say that 10 years are not sufficient, the researchers said, adding that so, the defaulted loan crisis was not going away and it would deepen further instead.

Commenting on the impact of the regulatory forbearance introduced by the central bank, the paper said, ‘Although the classification status of these loans remains almost stagnant due to these circulars of BB, banks will not be required to keep provision against these loans.’

Therefore, the asset quality will deteriorate and the amount of NPLs will increase after the end of this virus outbreak, it said.

‘Persistent default culture and taking advantage of the relaxed loan rescheduling policy are major concerns for asset deterioration in the overall banking sector in the upcoming days,’ the researchers cautioned.

Accordingly to a report of the International Monetary Fund published last year, the total amount of problem assets in Bangladesh’s banking sector as of June 2019 stood at Tk 2,40,167.17 crore.

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