Defaulted loans go up

HM Murtuza | Published: 00:00, Aug 26,2019


Defaulted loans in the country’s banking sector rose by Tk 18,513.17 crore during the first half of the year 2019, including the new addition of Tk 1,551.63 crore during the April-June period this year as ensuring good governance in the sector remained a far cry.

According to a Bangladesh Bank data, classified loans during January-June period this year surged by 19.71 per cent reaching Tk 1,12,425.17 crore at the end of June from Tk 93,911.4 crore at the end of December, 2018.

The volume of defaulted loan in the sector was Tk 1,10,873.54 crore at the end of March this year.

If the written-off loans, which were erased from banks’ balance sheet as they gave up all drives for recovery of such loans, Tk 53,258 crore were taken into consideration, the total defaulted loan amount would reach to Tk 1,65,683.17 crore.

Besides, recovery of another Tk 80,000 has remained stalled due to involvement of court orders, taking the total to Tk 2.46 lakh crore.

Although, after taking charge of the finance ministry in January this year, finance minister AHM Mustafa Kamal had announced that there would be no further increase in defaulted loan, the figures were mounting amid announcement of series of incentives for the defaulters.

Asked about the rising trend of the defaulted loans despite assurance from the high-ups in containing defaulted loans, Policy Research Institute executive director Ahsan H Mansur told New Age that there was no sign of even ensuring good governance and it remained the core reason behind the rising trend of defaulted loans.

Besides, the fresh government initiative to allowing rescheduling default loans with just 2 per cent down payment has worked as a stimulus for the bad borrowers, the executive director said, adding that such facility would also created scope for the defaulters taking fresh loans by repaying a tiny amount of their outstanding loans as down payment.

To grab the rescheduling opportunity, a section of the defaulters might have refrained from clearing regular installments, Mansur said.

Instead of taking tough measures against the loan defaulters to recover the money, the government immediately after its formation for the third consecutive term in January 2019, announced an eased loan rescheduling system.

Under the package defaulters were allowed to reschedule loans for 10 year inclusive of one-year grace period with just 2 per cent down payment, following which overall loan recovery slowed down.

Speaking about the lower increase in defaulted loans during the April-June quarter, Mansur said that many of the banks put an extra effort for default loan recovery during the quarter along with window-dressing measures to portray a better financial picture.

Experts also said that the government’s sympathetic approach to the defaulters along with lack of stringent measures against the defaulters were the core reasons for the soaring non-performing loans.

They cautioned that such rise in defaulted loans would put adverse multidimensional impact on the country’s entire economy.

In terms of quarterly evaluation, ratio of defaulted loans in the banking sector, however, dropped to 11.69 per cent of the outstanding loans as on June 30 this year against 11.87 per cent three months ago.

Instigated by defaulted loan rise, 13 public and private sector banks have suffered 12,897 crore provision shortfall at the end of June.

The banks include four state-owned commercial banks and nine private commercial banks.

Of the banks, BASIC Bank suffered highest Tk 3,073 crore in provision shortfall and Sonali Bank second highest Tk 1,942.2 crore in provision shortfall.

Rupali Bank faced at Tk 982.73 crore in provision shortfall and Agrani Bank suffered Tk 852.88 crore in provision shortfall.

Of the private commercial banks, AB Bank faced Tk 3,593.5 crore in provision shortfall, National Bank Tk 727.83 crore, Bangladesh Commerce Bank Tk 511.11 crore, Social Islami Bank Tk 370 crore, Dhaka Bank Tk 329.58 crore, Trust Bank Tk 183.61 crore, Mutual Trust Bank Tk 126.45 crore, Standard Bank Tk 103.34 crore and Shahjalal Islami Bank Tk 100.3 crore.

As per central bank regulations, banks are supposed to keep 0.50 per cent to 5 per cent provision of defaulted loans with Bangladesh Bank against general category loans, 20 per cent against classified loans of sub-standard category, 50 per cent against classified loans of doubtful category, and 100 per cent against classified loans of bad or loss category.

The banking sector was hit by a series of scams and irregularities over the past several years, with the latest scam involving Tk 3,572.98 crore in Janata Bank by five subsidiaries of the Crescent Group and another of Tk 5,508 crore by AnonTex in the same bank in the outgoing financial year 2018-19.

In 2012, Bismillah Group swindled about Tk 1,100 crore from Janata Bank and the Hallmark Group siphoned out about Tk 3,500 crore from Sonali Bank in 2013.

In 2016, a central bank investigation found that Farmers Bank (now Padma Bank) sanctioned and disbursed loans and hid defaulted loans amounting to about Tk 400 crore in violation of banking rules.

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