Loans in default continue to dog Bangladesh banking sector

Updated at 11:31pm on January 23, 2020

ABOUT Tk 969.86 billion in loans in default being in the hands of 8,238 companies until November 2019, as the finance minister told the parliament on Wednesday, is worrying. The amount of loan in default, as New Age reported earlier, increased to Tk 1,162.88 billion in September 2019, from Tk 1,124.25 billion as of June that year, which was up from Tk 939.11 billion as of December 2018. While this suggests that the government has failed to arrest the growth of loans in default, leading banks are reported not to have been able to recover such loans from 4,198 companies while banks could recover Tk 258.36 billion from other companies. Such a proposition suggests that recovery process of loans, especially loans in default, may not have been up to the requirement. The minister has also said that banks gave out Tk 31.03 billion in loans until 1996 and 32.04 per cent of it became classified or in the danger of default; banks gave Tk 208.36 billion in loans in 1997–2008 and 10.79 per cent of it became classified; and banks gave Tk 969.88 billion in loans in 2009–September 2019 and 11.99 per cent of it became classified. The figures in no way paints a good picture of loan recovery efforts.

The finance minister has, moreover, said that directors of banks took Tk 1,732.3 billion in loans from banks, own and other, and the amount includes about Tk 16.14 billion taken in loans from own banks. Directors of 25 banks are reported to have taken loans from own banks while 55 banks gave loans to directors of other banks. The proposition also warrants that relevant authorities should look into if bank directors have violated the provision for permissible limits in taking loans from their own banks. Directors on the boards of Rajshahi Development Bank and Bangladesh Development Bank took no bank loans. But AB Bank Ltd directors topped the list of borrowing from own bank with Tk 9.07 billion, with BRAC Bank directors coming to be in the second position with Tk 3.63 billion. Islami Bank gave out Tk 191.77 billion to directors of other banks and EXIM Bank gave out Tk 105.14 billion to directors of other banks. Of the state-owned banks, Janata Bank gave out Tk 101.26 billion in loans, which account for 16.18 per cent of the bank’s total loan disbursement, to directors of other banks; and Pubali Bank gave out Tk 97.35 billion in loans, which account for about 25 per cent of the bank’s total loan disbursement, to directors of other banks. Such a proposition does not look sound.

A policy to restructure non-performing loans for a poor down payment against outstanding loans and the government’s lenient approach to defaulters, especially wilful defaulters, and loan recovery having already been in place may very well spell out further disaster if other issues such as a drastic increase in loans, the assessment of asset quality and protection against non-performing loans are not effectively attended to. With 12 banks having already been in the problems of capital shortfall, the situation, if allowed to continue, might not only bring down the banks in question but the whole of the banking sector.