Govt must contain defaulted loans that leave banks bleeding

Published: 00:00, Jun 17,2021

 
 

THE amount of loans in default is reported to have surged by Tk 68.02 billion to Tk 950.85 billion as of March 2021 from Tk 882.83 billion as of December 2020, accounting for 8.07 per cent of the outstanding loans of Tk 11776.58 billion in the banking sector. Such an increase is worrying because this has taken place despite under-reporting and a moratorium facility for 2020 amidst the Covid outbreak. The Bangladesh Bank has till date granted a number of facilities, including the extension of loan instalment payment term, for borrowers. What is further worrying is that although the amount of defaulted loans used to be reported in public banks, this time it is private commercial banks that have led the increase. Central bank data show that the amount of loans in default in private commercial banks increased to Tk 450.9 billion as of March from Tk 399.16 billion as of December 2020 as Tk 51.74 billion that they lent turned the amount in default in the January–March quarter, signifying a ratio in defaulted loans in private banks that increased to 47.42 per cent as of March 2021 from 45.21 per cent as of December 2020.

The amount of loans in default in state-owned commercial banks also increased to Tk 434.5 billion as of March from Tk 422.74 billion as of December 2020, while defaulted loans in specialised banks increased to Tk 40.86 billion and in foreign commercial banks to Tk 24.58 billion in the quarter. The amount of loans in default increased after the government in early 2019 rolled out an easy loan structuring, which came into force in July that year, allowing borrowers to reschedule, under a special provision, the payment of loans for 10 years, with one-year grace period, for a down payment of 2 per cent of the outstanding loans. The amount kept increasing even under the facility at hand rolled out amidst the Covid outbreak whereby borrowers could have the space of two more years to repay their bank loans. The government earlier pursued a policy which was nothing but an effort to make the amount of loans in default look less with some cosmetic measures by tweaking procedures or giving irrational policy support while the situation on the ground remains as bad as ever. With policy support for loans in default one after another, it is highly unlikely that growth in the amount of defaulted loans could be effectively arrested.

It appears that the Covid outbreak has been used as an excuse to extend further support for loans in default. The government must, in such a situation, resolve, rising on a firm political commitment, to arrest the growth of defaulted loan after having in hand stringent measures against loans in default and loan defaulters. The failure of the central bank in oversight and political influence have earlier been blamed for the soaring amount of defaulted loans. The government must also attend to such issues that may have so far been left ignored.

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