In a troubling revelation, Bangladesh Bank has reported that only 20.25 per cent of the Tk1.76 lakh crore in defaulted loans has been resolved in various courts as of June 2024, with a mere Tk35,780 crore recovered.
The New Nation on Wednesday reported that the banking sector is grappling with alarming default rates, attributed to indiscriminate loan approvals, collusion among bank directors, and the overvaluation of collateral.
The central bank’s findings indicate that recovery efforts are being conducted through four types of courts: money loan courts, bankruptcy courts, certificate courts, and district-level courts.
State-owned banks are faring the worst, recovering only 17.46 per cent of their Tk1.05 lakh crore in outstanding dues. In contrast, private banks have managed to recover 23.45 per cent of settled cases, amounting to Tk15,266 crore from Tk65,056 crore resolved. Specialised banks have recovered Tk1,775 crore from Tk4,738 crore in settled cases.
Speaking anonymously, a senior official from Bangladesh Bank highlighted that many loans are written off due to borrowers’ deaths or business closures, rendering lawsuits costly and often futile. He noted that top bank officials frequently collude in lending practices, leading to loans backed by significantly undervalued collateral.
The Managing Director of a private commercial bank pointed to insufficient document verification for large clients as a major factor in recovery failures. He stated, “Influential individuals and business owners often pressure banks to extend loans, creating significant challenges for the sector.”
A former lead economist at the World Bank’s Dhaka office echoed these concerns, stating that while substantial amounts have been settled in Money Loan Courts, recovery remains minimal. He attributed this to the frequent overvaluation of collateral and the systemic weaknesses that prevent banks from lending to credible borrowers.
As of June 2024, there are 2.13 lakh pending cases across the four court types, involving Tk2.69 lakh crore in bank dues. However, the Money Loan Courts have 67,500 cases with dues amounting to Tk2.09 lakh crore.
In a stark illustration of the crisis, banks have written off Tk80,836 crore in unrecoverable default loans, with non-performing loans (NPLs) surging by Tk73,586 crore in just three months, now totalling Tk2,84,977 crore — nearly 17 per cent of the country’s outstanding loans. This alarming trend underscores the urgent need for reform in the banking sector to restore stability and confidence.
