Bangladesh Bank has warned top bosses of 20 banks that the entities might face existential crisis unless effective measures are taken to recover their defaulted and written-off loans.
BB deputy governor SK Sur Chowdhury came up with the caution while holding a meeting with the officials of the banks at the BB headquarters in the capital Dhaka on Monday.
Representatives from Janata Bank, Rupali Bank, Bangladesh Krishi Bank, Rajshahi Krishi Unnayan Bank, AB Bank, Dutch-Bangla Bank, National Credit and Commerce Bank, Jamuna Bank, Premier Bank, EXIM Bank, The Farmers Bank, The City Bank, Al Arafah Islami Bank, Uttara Bank, Bank Asia, State Bank of India, Woori Bank, Bangladesh Commerce Bank, ICB Islamic Bank and Commercial Bank of Ceylon attended the meeting.
After the meeting the BB deputy governor said the central bank called the meeting to save the 20 banks, which performed poorly in the recent times in terms of loan recovery, from risk.
‘At the meeting, the banks were asked to put special emphasis on recovering classified loan,’ he said.
The boards of directors of the banks were asked to discuss their loan recovery status in every meeting, Sur said.
Besides, introduction of rewards for better-performed employees and taking steps for speedy disposal of the cases pending with different courts for loan recovery were among the BB instructions, he said.
Overall state of a bank including income or profit depends on its loan recovery, Sur said, stressing on the importance of loan recovery.
Poor loan recovery raises defaulted loans, while the defaulted loans require increased provisioning and subsequently reduces profitability, he said.
Considering the facts, a poor classified loan recovery of a bank ultimately leads the entity’s existence at risk, the central banker added.
The central bank selected the 20 banks considering their poor loan recovery performance between September 2015 and June 2016, BB officials said.
The banks are yet to submit their loan recovery information of the last quarter (October-December) of 2016.
The BB data showed that Janata Bank recovered only Tk 50.33 crore against its defaulted and written-off loans between July and September of 2016, Rupali Bank Tk 19.74 crore, BKB Tk 111.23 crore, RAKUB Tk 43.05 crore, AB Bank Tk 4.80 crore, DBBL Tk 3.42 crore, NCCBL Tk 11.01 crore, Jamuna Bank Tk 9.08 crore, Premier Bank Tk 8.88 crore, EXIM Bank Tk 29.75 crore, Farmers Bank Tk 6.84 crore, City Bank Tk 66.13 crore, Al Arafah Bank Tk 57.56 crore, Uttara Bank Tk 34.42 crore, Bank Asia Tk 56.97 crore, SBI Tk 0.05 crore, Woori Bank Tk 0.03 crore, ICB Islamic Bank Tk 3.58 crore, CBC Tk 2.36 crore and BCBL Tk 1.05 crore.
A BB official said that the country’s banking sector had recently faced a number of loan scams which raised the amount of defaulted loans in the banking industry.
The central bank will set a roadmap for the banks to recover their defaulted and written-off loans, the BB official said.
The defaulted loans have increased to Tk 62,172 crore as of December 31, 2016 from Tk 51,371.22 crore as of December 2015 in the country’s banking sector, the BB data showed.
The defaulted loans and the written-off loans comprised together Tk 1,04,846 crore as of last December 2016.
The banks wrote off loans amounting to Tk 42,674.04
crore as of September 30, 2016.
Banks are allowed to write off loans when those turn into defaulted loans — falling into bad loans or loss category.
Banks have to file lawsuits with Artha Rin Adalat against the defaulters and have to keep a 100-per cent provision, before writing off the loans.
Banks erase such loans to show a lower portfolio of unpaid loans on their respective financial balance sheets, but the practice is harmful for the banks’ health, a BB official told New Age.
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