Tk1.77 lakh crore default loan cases settled with just 20% recovery

Infographic: TBS

Cases involving Tk1.76 lakh crore default loan have been settled through different courts as of June 2024, with the recovery of only Tk35,780 crore or a dismal 20.25% of the total amount, according to the Bangladesh Bank.

Bank officials say the key reasons for these loans being defaulted include indiscriminate loan disbursement in collusion with bank directors and related institutions, overvaluation of collateral, and the closure of borrowing institutions.

The central bank's report states that loan recovery cases against defaulters are filed through four types of courts in the country – the money loan courts, bankruptcy courts, certificate courts, and other district-level courts.

The report shows that state-owned banks had the lowest recovery rate from the settlement of default loan cases through the courts. These banks had outstanding dues of Tk1.05 lakh crore, from which they recovered just 17.46%.

Private banks, after settling default loan cases in four different types of courts, had a total settlement amount of Tk65,056 crore, from which they recovered Tk15,266 crore, or 23.45%.

Additionally, specialised banks settled default loan cases amounting to Tk4,738 crore, of which they recovered Tk1,775 crore.

A senior official of the central bank told TBS on condition of anonymity that many loans are settled due to circumstances such as the death of the borrower or the closure of a business. In such cases, filing lawsuits only adds to the bank's expenses.

He added, "There is often collusion among top bank officials in such lending practices. The collateral taken for loans is frequently much lower than the actual value of the loan. Moreover, the same collateral is repeatedly overvalued, showing an inflated value. When loans default, even the principal amount cannot be recovered."

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said that the reason banks fail to recover money is the lack of proper verification of documents when lending to large clients. As a result, even if cases are settled, the bank cannot recover the money.

"Owners and influential individuals exert pressure to force banks to give loans, which has become a major problem for the banking sector," he said.

Zahid Hussain, former lead economist at the World Bank Dhaka office, told TBS, "A large sum of money has been settled in the Money Loan Courts, but recovery has been very low. One of the main reasons is that the collateral (mortgage) taken from borrowers is often overvalued."

"After some time, many businesses go bankrupt, or borrowers pass away, leaving no opportunity to recover the loans. Even when the mortgage is sold, only a nominal amount is recovered," he said.

He further said, "This scenario points to the weaknesses in the banking system. Banks often fail to lend to good customers, which causes many businesses to eventually become defaulters."

Tk2.69 lakh crore stuck in court cases involving banks 

According to the latest data from Bangladesh Bank, as of June 2024, there are 2.13 lakh pending cases across four types of courts in the country, involving a total of Tk2.69 lakh crore in bank dues.

Among these, there were 67,500 cases in the Money Loan Courts, with outstanding bank dues of Tk2.09 lakh crore.

State-owned banks have claims of Tk83,487 crore, private banks have Tk1.20 lakh crore, and specialised banks have Tk2,478 crore.

Additionally, there are 42,115 cases in Civil Courts related to defaulting borrowers, with bank dues totalling Tk58,126 crore.

Among these, the highest dues are held by private banks at Tk47,349 crore, followed by state-owned banks with Tk9,131 crore.

Furthermore, in the cases in Certificate Courts, banks are owed Tk431 crore, and in Bankruptcy Courts, the figure stands at Tk1,184 crore.

Default loans worth Tk80,836 crore written off

Banks in the country have written off Tk80,836 crore in default loans that are deemed unlikely to be recovered, keeping them off their balance sheets, according to a special report by the Bangladesh Bank.

Of this amount, state-owned banks account for Tk23,852 crore, private banks for Tk55,143 crore, and specialised banks for Tk1,496 crore.

NPL status of banking sector

Nonperforming loans (NPLs) in Bangladesh's banking sector have surged by a staggering Tk73,586 crore in just three months through September, marking the highest quarterly increase on record.

According to the Bangladesh Bank, total NPLs now stand at Tk2,84,977 crore, which constitutes nearly 17% of the country's outstanding loans of around Tk16.83 lakh crore.

This reflects a sharp increase from Tk2,11,391 crore recorded in June.