Futile efforts to paper over loan default cracks

Published: 00:00, Mar 11,2019 | Updated: 22:49, Mar 10,2019


THE changes that the Bangladesh Bank plans to effect in the definition of loan default in relevant guidelines to arrest the growing amount of loans in default, as New Age reported on Sunday, appear to be efforts to paper over the cracks that have so far made the non-performing loan portfolio look bad, with the problems still cutting through the banking sector. The central bank, after a meeting of the finance minister with the Bangladesh Bank governor on January 13, instituted a committee on January 31 aimed at making policy changes to arrest the growth of loans in default. The committee is reported to have been asked to recommend changes on a number of issues such as the guidelines on loan default, the definition of bad loan and an increase in the shareholding percentage so that shareholders having up to 20 per cent, which is now the limit, could not be considered loan defaulters. The committee at its meeting in the past week discussed the possibility of extending the repayment period of loans, which is now nine months after which the loan is declared defaulted.
The amount of bad loans increased more than four times during the first two consecutive tenures of the Awami League-led government, from Tk 224.82 billion in 2009 to Tk 939.4 billion in 2018, because of series of loan scams in the state-owned banks. Bad loans in the state-owned commercial banks increased by 29.81 per cent, or Tk 113.67 billion, to Tk 486.96 billion in 2018 from Tk 373.26 billion in December 2017 and classified loan in private commercial banks increased by 29.74 per cent, or Tk 87.43 billion, to Tk 381.40 billion from Tk 373.26 billion in the period. All this has been a big problem for the banking sector, leaving the government still struggling to tackle the situation by way of putting more public money into the ailing banks, but without taking any deterrently significant action against the banks in question. The central bank, in a move to make issues look good, on February 6 relaxed the policy to allow banks to write off loan up to Tk 200,000 instead of Tk 50,000, which was till then in the policy, only to earn criticism by bankers and economists as this was nothing but a ploy to artificially cut the amount of loans in default by a big margin. Such plans and ploys have given rise to fears that the institution of the committee in question could come up with such recommendations that would bring down the amount of defaulted loans in paper, but there would be no improvement in the situation on the ground.
The central bank, in a similar move, tried to change the definition of defaulted loan in 2000 but stepped back because of reservations of the International Monetary Fund as this was contrary to international norms. The central bank, under the circumstances, must abstain from making any such superficial plans and the government must rather ensure good governance in the banking sector and ask the banks to recover the loans in default, giving them deadlines and targets, with consequent punishment on failure.

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