Banks recover only 20pc of Tk1.76 lakh cr defaulted loans

Staff Reporter :

A total of 20.25 per cent of the Tk1.76 lakh crore defaulted loans have been resolved in various courts up to June 2024, but only Tk35,780 crore has been recovered, according to Bangladesh Bank sources.

Bank officials attribute the high default rates to indiscriminate loan approvals, often involving collusion with bank directors and affiliated institutions, overvaluation of collateral, and the closure of borrowing entities.

The central bank’s report reveals that loan recovery cases against defaulters are handled through four types of courts: money loan courts, bankruptcy courts, certificate courts, and district-level courts.

The report highlights that state-owned banks achieved the lowest recovery rates from settled default loan cases. These banks, with Tk1.05 lakh crore in outstanding dues, managed to recover only 17.46 per cent.

Private banks, after resolving default loan cases across the four court types, settled amounts totalling Tk65,056 crore, recovering Tk15,266 crore or 23.45 per cent. Similarly, specialised banks resolved cases worth Tk4,738 crore, recovering Tk1,775 crore.

Anonymously, a senior central bank official commented that many loans are written off due to factors such as the borrower’s death or the closure of the business, making lawsuits costly and often futile for banks.

He further explained, “Top bank officials often collude in such lending practices, leading to loans being backed by collateral significantly undervalued compared to the loan amount.

Frequently, the same collateral is overvalued repeatedly, and even the principal loan amount becomes irrecoverable after default.”

Syed Mahbubur Rahman, Managing Director of Mutual Trust Bank, stated that insufficient verification of documents, especially for large clients, is a major cause of recovery failure. “Influential individuals and business owners often pressure banks to extend loans, creating significant challenges for the sector,” he said.

Zahid Hussain, former lead economist at the World Bank’s Dhaka office, observed that while significant amounts have been settled in Money Loan Courts, recovery remains minimal. “One of the main issues is the frequent overvaluation of collateral (mortgages),” he stated.

He added, “Businesses often go bankrupt or borrowers pass away, leaving little room for recovery. Even selling the collateral typically results in only a fraction of the loan amount being recovered.

This reflects systemic weaknesses, where banks fail to lend to credible borrowers, eventually turning many businesses into defaulters.”

Bangladesh Bank data shows that as of June 2024, there are 2.13 lakh pending cases across the four court types, involving Tk2.69 lakh crore in bank dues.

Of these, the Money Loan Courts have 67,500 cases with dues amounting to Tk2.09 lakh crore. Among these, state-owned banks have claims of Tk83,487 crore, private banks Tk1.20 lakh crore, and specialised banks Tk2,478 crore.

Additionally, Civil Courts handle 42,115 cases involving Tk58,126 crore in dues, with private banks holding the largest share (Tk47,349 crore), followed by state-owned banks (Tk9,131 crore).

In Certificate Courts, banks are owed Tk431 crore, while Bankruptcy Courts account for Tk1,184 crore.

According to a special Bangladesh Bank report, banks have written off Tk80,836 crore in unrecoverable default loans, excluding them from their balance sheets. State-owned banks wrote off Tk23,852 crore, private banks Tk55,143 crore, and specialised banks Tk1,496 crore.

Non-performing loans (NPLs) in the banking sector have seen an unprecedented increase of Tk73,586 crore in just three months through September, marking the largest quarterly surge to date.

As reported by Bangladesh Bank, NPLs now total Tk2,84,977 crore, representing nearly 17 per cent of the country’s outstanding loans, which stand at approximately Tk16.83 lakh crore. This is a sharp rise from the Tk2,11,391 crore recorded in June