High loan default questions banking sector governance

Published: 00:00, Aug 27,2019

 
 

A HIGH increase in loan default in the first half of 2019 casts doubt on the government’s loan recovery efforts and its intention to ensure good governance in the banking sector. An increase by Tk 185.13 billion in the first half of the year has taken the amount of loans in default in the sector to Tk 1124.25 billion, registering a surge by 19.71 per cent, from Tk 939.11 billion as of December 2018. The figure of defaulted loans was, however, Tk 1108.73 billion as of March 2019, suggesting a lower increase by Tk 15.52 billion in the April–June quarter. But it comes as no good news because the window dressing of the bad loan portfolio by the banks along with their additional efforts, in cases, put in to recover loans in default may have portrayed an apparently good picture. The total figure would reach Tk 1656.83 billion if Tk 532.58 written off were counted and could reach Tk 2460 billion if Tk 800 billion, the recovery of which has been entangled in legal process, were taken into account.

The amount of defaulted loans keep growing although the finance minister, on assuming office in January in the third consecutive term of the Awami League in government, said that there would be no further increase in default loan. While saying this, the government announced, in January, an easy loan restructuring. The policy — floated on May 16, stayed by the High Court until June 26 and the stay being vacated by the appeals court on July 8 — allowed borrowers to reschedule the repayment of loans for 10 years, with a one-year grace period, for a 2 per cent down payment of the outstanding loans. Many experts, even in the Financial Institutions Division, are reported to have noted the policy as a reason for the increase in the amount of defaulted loan as borrowers wilfully defaulted on repayment. The increase in default loans has left 13 public and private banks with Tk 128.97 billion in the shortfall of provisions. The banks include four state-owned banks — BASIC Bank with Tk 30.73 billion, Sonali Bank with Tk 19.42 billion, Rupali Bank with Tk 9.83 billion and Agrani Bank with Tk 8.53 billion. AB Bank tops the list of private commercial banks with Tk 35.93 billion in the shortfall of provisions. The banking sector came to be adversely affected as the Bismillah Group swindled about Tk 11 billion in 2012 and AnonTex Tk 55.08 billion in 2018–19 from Janata Bank, the Hallmark Group misappropriated about Tk 35 billion from Sonali Bank in 2013 and BASIC Bank lost more than Tk 60 billion by way of fictitious loans extended by the bank’s board. Yet the government has put in more capitals into the ailing bank while it has hardly taken any deterrent action against the bank boards that let down the banking sector.

A situation like this, especially what is happening centring on the recovery of defaulted loans, if it is allowed to continue, would have dangerous consequences on the national economy. While the government must put in more efforts to recover loans in default, it must not show any leniency towards borrowers that defaulted on loan repayment. And it must ensure good governance in the banking sector.

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