Defaulted loans surging constantly

Staff Reporter :
The default loans in banking sector is still rising amid relaxed repayments and rescheduling loan policies offered by the central bank.
Experts said that the central bank policy along with lack of corporate governance, scams, poor payment discipline of borrowers, and the ongoing business slowdown are responsible for the soaring non-performing loans in the sector.

As of December 2022, the default loans at local banks increased by 16.8 per cent year-on-year to Tk 120,656 crore, according to last available data from Bangladesh Bank (BB).

Considering the last 10 years since 2012, the total volume of non-performing loans (NPLs) has increased by more than three times.
The country was reported to have the second-highest ratio of non-performing loans (NPLs) among South Asian countries, behind only Sri Lanka. In case of non-bank financial institutions (NBFIs), the ratio of NPLs is the highest in Bangladesh.

Considering standard practices around the world, commercial banks, and financial institutions should restrict their NPLs rate within 3 per cent while the country’s state-owned banks (SoBs) NPLs rate is at least six times higher than the common standard, according to the financial experts.
The forbearance for loan repayments and the relaxed loan rescheduling policy offered by the central bank have failed to rein in the upward trend of non-performing loans (NPLs), they added.

Six SoBs including Sonali, Agrani, Janata, Rupali, Basic and BDBL have loans and advances of Tk 2, 78,422 crore till last February this year. Out of this total amount, NPLs stood at 20.27 per cent which amounted to Tk 56,461 crore.

Among these six state banks, Basic Bank has the highest default rate at 58 per cent while Sonali Bank has the lowest at 15 per cent.
However, private banks are not left behind. Default loans are also growing there at an increasing rate.

Seeking anonymity an official of the central bank said that the amount of non-performing loans would have been much higher than the existing volume had the central bank not relaxed the loan classification policy. As per the central bank rules, borrowers were allowed to avoid the default zone by giving only 15 per cent of their total installments of loans payable for last year, he informed.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh said, “Banks normally recover a nominal amount of loans compared to hefty unpaid installments just before the end of a year in a bid to paint a rosy picture of their balance sheets. If calculated properly, the default loans could be of horrific size.
Mansur feared that a large portion of the defaulted loans had been laundered abroad because they were taken under anonymous names, making recovery impossible.
Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue, said that the central bank to move away from relaxing its policies on loan classification and rescheduling.

“If we fail to address the issue of default loans appropriately, the ongoing volatility will deepen,” he warned.