Defaulted loans soar ridingĀ on governance failures

Updated at 12:15am on September 12, 2018

AN INCREASE by 20.23 per cent, or Tk Tk 150.37 billion, in defaulted loans in the banking sector in the first half of this year, taking the total to Tk 893.4 billion as of June 2018 from Tk 743.03 billion as of December 2017, is a testimony to a glaring failure of the enforcement of rules and regulations in the sector, especially in loan disbursement and recovery. The amount of the total defaulted loans, however, would reach Tk 1380 billion if about Tk 500 billion in loans that was written off were added. The amount of defaulted loans declined to Tk 743.03 billion in the September–December quarter of 2017 from Tk 803.07 billion in the July-September quarter of 2017 as, as central bank data show, 57 scheduled banks rescheduled Tk 191.2 billion in loans in 2017. A situation like this is also a pointer to a very weak management of the banking sector as loans that were restructured in the past year became defaulted or classified again in the absence of any strict measures by the regulators, which was bolstered by the lack of the required political will for action against wilful defaulters.
Classified loans in six state-owned banks — Sonali, Agrani, Janata, Rupali, BASIC and Bangladesh Development Bank Limited — increased to Tk 428.52 billion as of June 2018 from Tk 373.26 billion as of December 2017, accounting for 28.24 per cent of the total amount of loans disbursed. The banking sector has, in fact, been mired in growing amount of bad loans because of a series of loan scam and embezzlement, including that of the Hallmark Group, which gulped Tk 35 billion from Sonali Bank that failed to recover a single farthing, the shady loans of Tk 60 billion that BASIC Bank gave out and the loan scam of Tk 50 billion that Janata Bank gave out to the AnonTex Group. This all suggests that the loan scams and incidents of embezzlement not having been properly attended to after they were detected provided for encouragement for the further plundering of public money from the banking sector. Experts think that such a situation in the banking sector has been due to the failure to adhere to standard procedures of loan disbursement, corruption and inefficiency of bank professionals. Much of such failures also lies with the regulators as they could hardly take action or step against wilful defaulters because of their clout, political or financial.
The government, in a situation like this, must rise above partisan line and allow, and also force, banks to strictly adhere to loan disbursement procedures and put in more efforts in the recovery of loans. The government must also put in place punitive measures for banks failing to recover the loans they give out within a timeframe. The government must also not put in more capital into ailing banks without first punishing the people who let down the banking sector.