Banking sector flounders mired in ill-meaning moves

Published at 12:05am on June 12, 2019

A SURGE in the amount of loans in default which soared to Tk 1108.73 billion — riding on the wings of a 31 per cent increase in such loans in private commercial banks — after the first quarter of 2019 is a sorry sign. It shows that the measures that the government has taken to arrest the increase in defaulted loans have largely fallen flat, as experts earlier thought that they would, for an evident lack of stringency. The figure would, however, reach Tk 1637.58 billion if the amount of loans written off, Tk 528.84 billion, were counted. Non-performing loans increased by 18,06 per cent, or Tk 169.62 billion, only in the first quarter of 2019, on Tk 939.114 billion as of December 2018. Loans in default in private commercial banks increased, as the latest Bangladesh Bank data show, by Tk 118.10 billion in the quarter, taking the total amount to Tk 499.50 billion from Tk 381.40 billion as of December 2018. The amount of defaulted loans in state-owned commercial banks increased by Tk 51.83 billion, taking the total to Tk 538.80 billion from Tk 486.96 as of December 2018. Loans in default in foreign commercial banks, however, declined by 1.38 per cent while the amount of defaulted loans in specialised banks remained unchanged at Tk 47.87 billion in the period.

Experts put such a deplorable situation down to the government’s lenient attitude to loan defaulters which are feared to have multifarious adverse impact not only on the already ailing banking sector but also on the entire economy. The amount of defaulted loans started showing a sign of arrest as of December 2018 because of moves initiated to recover defaulted loans by way of rescheduling — declining by 5.49 per cent from the September 2018 figure — but has soared again after March 2019 even though the finance minister in January said that defaulted loans would no longer increase. The Awami League government on assuming office for the third consecutive tenure in January announced an easy loan rescheduling, whereby defaulters are allowed to restructure their loans for 10 years, including a one-year grace period, for a 2 per cent down payment, which almost stalled the defaulted loan recovery process. The package, put on offer on May 16, has, however, been stayed by the court till June 26. Yet, it is believed to have sent out a wrong signal that the government is lenient about loan recovery. While defaulters willing to repay their loan may have stopped so doing, new borrowers might have chosen to follow suit.

The controversial amendment to the Bank Company Act 1991, an improper policy to write off loans and putting more money into ailing banks, without improving banking-sector governance and without holding to account people responsible for a series of loan scams that have taken place continue to plague the banking sector. Such improper measures in the event of irregularities have only encouraged defaulters not to repay their loans. The government must realise that if the banking sector fails to perform and wrongdoers are not held to account, the budgetary targets, however realistic, will remain elusive, further plaguing the entire economy.