Country’s banks wrote off afresh defaulted loans worth Tk 4,326.98 crore in 2016 as part of cleaning up their balance sheets.
According to the latest Bangladesh Bank data, banks’ total write-offs increased to Tk 44,690.64 crore as of December 31, 2016 from Tk 40,360.66 crore on December 31, 2015.
BB officials and an expert said that writing off uncollectible loans frequently was a bad practice for the banks as they tried to show lower portfolios of defaulted loans in the way.
But, the write-offs are the worst category of defaulted loans as recovery process of such credit is highly difficult, a BB official told New Age on Wednesday.
The central bank introduced the policy on writing off loans in 2003 when Fakhruddin Ahmed, former interim government chief adviser, was the BB governor with a view to cleaning up banks’ balance sheets, he said.
But, the policy has backfired as such practice play a role in deteriorating the banks’ financial health, he said.
The banking sector, however, in the last quarter (October-December) of 2016 recovered Tk 318.29 crore from the amount of bad loans they had earlier written off.
The BB data showed that defaulted loans in the banking sector increased to Tk 73,409 crore as of March 30, 2017 from Tk 62,172.32 crore as of December 31, 2016.
The amount of defaulted loans and the write-offs in the banking sector together stood at Tk 1,18,099.64 crore at the end of the first quarter (January-March) of 2017.
Banks are allowed to write off loans when those become defaulted loans of bad or loss category.
Banks have to file law suits with Artha Rin Adalat against the defaulters and have to keep 100 per cent provision against the write-offs.
The cumulative write-offs at Bangladesh Development Bank increased to Tk 2,815 crore as of December 31, 2016 from Tk 1,938.24 crore as of December 31, 2015, that at AB Bank to Tk 1,205.93 crore from Tk 901.93 crore, that at AL-Arafah Islami Bank to Tk 456.74 crore from Tk 334.54 crore, that at Bank Asia to Tk 512.39 crore from Tk 420.35 crore, that at BRAC Bank to Tk 1,368.12 crore from Tk 1,136.68 crore and that at Eastern Bank Tk 762.51 crore from Tk 566.80 crore.
IFIC Bank posted a cumulative write-offs at Tk 1,573.74 crore as of December 31, 2016 against Tk 1,362.76 crore as of December 31, 2015, Prime Bank at Tk 1,686.41 crore against Tk 1,110.91 crore, Southeast Bank at Tk 1,006.94 crore against Tk 893.89 crore, The City Bank at Tk 1,587.97 crore against Tk 1,239.35 crore and Uttara Bank at Tk 1,271.31 crore against Tk 1,129.24 crore.
Finance adviser to a former interim government Mirza Azizul Islam told New Age on Wednesday that the central bank should discourage the banks from writing off defaulted loans.
Although the banks concerned are showing lower volumes of defaulted loans through the write-off process, their financial health continues to deteriorate, he said.
The BB should run a special drive to recover the write-offs with the support from law and finance ministries, he said.
The amount of write-offs in the private commercial banks increased to Tk 21,108.96 crore as of December 31, 2016 from Tk 17,909.90 crore as of December 31, 2015 and that in the foreign commercial banks to Tk 808.85 crore from Tk 705.65 crore.
The amount of write-offs in the two state-run specialised banks — Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank — remained unchanged at Tk 555.18 crore.
The amount of write-offs in the state-owned commercial banks rose to Tk 22,217.65 crore as of December 31, 2016 from Tk 21,189.92 crore as of December 31, 2015.
Want stories like this in your inbox?
Sign up to exclusive daily email
More Stories from Banking