Moratorium withdrawal leads to Tk10,167cr default loan increase

Defaulted loans in the country's banking sector have increased by Tk10,167 crore in the first three months of this year despite various concessions on loan repayment in the wake of the Covid-19 outbreak.

At the end of December 2021, the amount of defaulted loans was Tk1.03 lakh crore. Three months later, at the end of March, the defaulted loans stood at over Tk1.13 lakh crore, according to the classified loan and provisioning report of the Bangladesh Bank.

Industry insiders say although the business of large borrowers is in a good position, they are deliberately defaulting on loans due to a lack of proper action against them.

At the same time, due to the withdrawal of the loan repayment facility – which is known as a moratorium – from the beginning of this year, the number of new defaulting customers has increased and the amount of defaulted loans has gone up significantly in the March quarter.

According to the Central Bank report, the total loan disbursement in the banking sector in December 2021 was Tk13,01,797 crore. The default rate was 7.93%. At the end of March this year, the total debt stood at Tk13,29,735 crore. Of these, defaulted loans stood at 8.53%.

The defaulted loans in March 2021 stood at Tk94,265 crore. It means, defaulted loans have increased by Tk19,175 crore in one year.  

AB Mirza Azizul Islam, a former finance adviser of a caretaker government, told The Business Standard that increasing defaulted loans is an old habit of borrowers.

"If loan defaulters are repeatedly given benefits and the term of the loan is extended and a one-time instalment facility is given, it will lead to an increase in the list of defaulters. Again, the amount of defaulted loans would go up further if the defaulters were made according to the international method," he said.

He further said that in order to get rid of debt defaulters, effective action should be taken immediately. Failure to do so will result in borrowers taking advantage due to political affiliation or other reasons. As a result, other borrowers will not be interested in repaying loans.

Mirza Aziz further said that there are many such demands for giving moratorium facilities to businesses and giving tax facilities at zero rates.

"The Bangladesh Bank should have a stronger role in dealing with defaulting borrowers. Cases of debt defaulters are pending in the money loan courts year after year," he added.

According to the central bank report, the worst condition of defaulted loans is in six state-owned banks. The total disbursed loan of these six banks is Tk243,578 crore. Out of this, the amount of defaulted loan is Tk48,737 crore. Which is 20% of their total debt.

Besides, the defaulted loans of the three specialised banks amounted to Tk4,015 crore which is 12.01% of their total loans.

At the same time, the defaulted loans of 42 private sector banks amounted to Tk57,803 crore which is 5.84% of their total loans. The defaulted loans of foreign banks stood at Tk2,848 crore, which is 4.53% of their total loans.

Selim RF Hossain, chairman of the Association of Bankers Bangladesh (ABB) and managing director of Brac Bank, told TBS that the country's business has started recovering from the pandemic.

"So it will take another six months for the defaulted loans to decrease. Some banks are faring bad but many banks do not have this problem," he added.

He further said that some big customers are taking advantage of this situation but many small customers are repaying their loans on time.

"And especially as Brac Bank works extensively in the SME sector, the repayment of loans in this sector is very good and our defaulted loans have further decreased," said Selim RF Hossain.

"The way external pressure is coming from all around now – in inflation, in commodity prices, in supply chain disruption – it's putting pressure on our overall economy," he said. As a result, there may be some difficulty in the days to come.

In the wake of the coronavirus outbreak, borrowers enjoyed a complete loan moratorium facility in 2020. It means banks did not show anyone defaulters despite their failures to repay instalments due to central bank directives.

The following year borrowers enjoyed the same facility with a repayment of 15% in all types of loans. The moratorium ended on 31 December 2021.

A senior official of the Bangladesh Bank said that since the beginning of the New Year, many borrowers have become defaulters due to a lack of special loan repayment facilities. In addition, many banks have shown their customers regular, but they were also defaulting customers, which came up in the central bank's annual audit and it has led to an increase in many new defaulted loans.

In this regard, Sirajul Islam, executive director and spokesperson of the central bank, said that the amount of new loans in the banking sector has increased a lot in the March quarter, so the defaulted loans have also increased.

"In addition, the default loan has increased a bit due to the removal of new loan repayment facilities. But hopefully, it will come down by June this year," he added.