Banks suffer as industrial loans recovery nosedives

Staff Reporter :
Industrial loans recovery in the banking sector sharply declined as it plunged by 33.74 per cent in the first three months of this year creating further stress in their liquidity management.

Businesses and corporations take industrial loans to meet their short-term and long-term financial needs, such as funding capital expenditure and business expansion.

According to the recent report from Bangladesh Bank, during the first quarter (January-March) of this year industrial loans recovery stood at Tk 1,04,485 crore, down from Tk 1,57,683 crore in December last year.

“As loans in the manufacturing sector occupied almost half of the banking sector’s loans and advances, this sector seems to pose a pocket of risk for the banking sector,” read the same report.

Economist said that the repercussions of a substantial amount of unrecovered loans are significant, including strain on bank finances, weakened risk management, and reduced profitability and potential credit constraints.

Explaining the current status of businesses, they also expressed that the manufacturing sector may face reduced revenue and cash flow, making it challenging for them to meet their loan repayment obligations as the country’s economy is grappling with an array of challenges, including high inflation, local currency depreciation, dollar shortage and energy crisis.

Apart from these, businesses in the industrial sector received Tk 1.31 lakh crore from banks and financial institutions in the January-March quarter, which is a decline from the Tk 1.49 lakh crore in the previous three months.

Meanwhile, the central bank data revealed a concerning trend with the amount of overdue loans in the industrial sector reaching a new high of Tk 1,12,003 crore by the end of March 2023, up from Tk 93,813 crore in December 2022.

The overdue loan amount indicates a debt that has passed its due date, meaning it should have been repaid by a certain time, but has not been paid yet.

In the small and cottage industry category, overdue loans were Tk 54,315 crore at the close of December 2022, which climbed by 6.43 per cent to reach Tk 57,806.02 crore in March 2023.

Likewise, in the large and medium industry sectors, overdue loans increased by 8.82 per cent and 3.08 per cent respectively, while there was a 3.58-per cent decrease in the micro industry.