Banks register Tk31,000cr default loans in 9 months

Infographic: TBS

In a period of economic recovery from the Covid-19 pandemic and threat of a global recession, defaulted loans in Bangladesh continue to soar, rising to a total of Tk31,122 crore in the last nine months, despite numerous facilities being offered.

According to data from the Bangladesh Bank, total disbursed loans in the country stood at Tk14.36 lakh crore in the period till September. Out of this, defaulted loans are Tk1.34 lakh crore.

At the end of June, defaulted loans were Tk1.25 lakh crore.

After Abdur Rouf Talukder became the governor of the central bank in July, the Bangladesh Bank revised up its scheduling policy, offering discounts on down payments in anticipation of a default loan wave.

Then, between July and September, defaulted loans in the banking sector increased by Tk9,000 crore, or 9.36% of total disbursed loans.

Earlier, the banking sector saw a sharp rise of Tk11,816 crore in default loans in the April-June quarter, taking the rate to 8.96%.

Accordingly, the share of non-performing loans also increased by 40 basis points compared to the previous quarter.

In the January-March quarter, default loans had risen by Tk10,167 crore.

According to central bank data, the country's state-owned banks have default loans of Tk60,502 crore, which is 23.04% of total loans.

Non-performing loans in private banks are 6.20% of total loans or Tk 66,696 crore. For specialised banks, it is Tk4,278 crore or 11.80%. The rate of non-performing loans in foreign banks is 4.77%.

Due to Covid-19, loan defaults started to increase after the withdrawal of the concession given in the collection of bank loans.

The new policy instituted by the governor has brought back a lot of facilities.

Borrowers are now allowed to reschedule their loans for a long period – up to 29 years.

According to a circular issued on 18 July, defaulters are also allowed to reschedule their loans by making a down payment – minimum 2.5% and maximum 4.5% – of their outstanding overdue.

Previously, the required down payment was minimum 10%-30%, but defaulters would take a discount from the Bangladesh Bank under special consideration.

Moreover, previously banks could allow defaulters to reschedule loans for a maximum of three times, but they are allowed to do so up to four times now. 

The new policy also gave the power to grant facilities and reschedule defaulted loans to the board of directors of the bank concerned. 

As a result, bank owners are now deciding which loans will get rescheduling benefits. Earlier, approval of the central bank was required in case of loan rescheduling. 

Despite these concessions by the central bank to reduce the defaulted loans, the amount is not falling. 

At the same time, business leaders have also complained of making consecutive losses, a decrease in export orders and a lack of energy supply in the factories, all of which are contributing to the rate of default loans.

Selim RF Hussain, chairman of the Association of Bankers Bangladesh (ABB), and managing director and CEO of Brac Bank, told The Business Standard that the country's economy has been under pressure for the past 5-6 months, and this will have spillover effects on different sectors.

"Rising inflation will affect everyone. Also the factories are affected due to power shortage. Amid these, I don't think governance has improved in the banking sector in the last 5-6 years."

Mentioning that those with huge loans are mostly defaulters, he said,  50% of Brac Bank's loans are in the Cottage, Micro, Small and Medium Enterprise sector.

"But we are not facing any problem. We have recovered a lot from the Covid-19 pandemic. The government has also provided many types of incentives and benefits. Despite a decrease in profit margin, good customers are continuing their work," he said.

"The mentality of many big entrepreneurs is to not return the loan. Many of them are defaulters on purpose. We need to be tougher on defaulting customers. Also, if our legal system was a little more supportive, then maybe the sector would have been better off," he added.

The banking sector experienced a 16.38% growth in default loans after many banks refrained from extending the moratorium facility in 2021.

The payment deferral that the central bank offered for January-December in 2020 helped banks reduce default loans amounting to Tk5,600cr throughout the year.

Default loans came down to Tk88,734cr in December 2020, which was 7.66% of total loans, the lowest in recent years.

The payment deferral facility, however, was partially lifted from the beginning of last year, causing a sharp rise in default loans, which crossed Tk1 lakh crore in September last year.