Even with relaxed repayment, banks waive Tk1,855cr interest in 2021

Despite relaxed repayment facilities and quite usual economic activities, banks waived Tk1,855 crore loan interest in 2021 – which is Tk277 crore more than what it was in the previous year.

Top banking experts have termed the rise in loan waiving "a bad signal" to the sector, as efforts to check the default loan turn futile.       

They said banks had to provide the customers with a bigger cushion during the Covid-hit 2020, as the respites included waiving more interest and relaxing repayment facilities. But continuation of the unusual facilities at a time when businesses were almost usual is totally unacceptable.   

According to the Bangladesh Bank, banks waived Tk1,194 crore interest in 2018 as the figure jumped to Tk2,293 crore next year. It dropped slightly to Tk1,578 crore in 2020, and spiralled again to Tk1,855 crore last year.  

Former central bank governor Salehuddin Ahmed said some big borrowers, who are also in bank boards, basically got benefited from the interest waiver.     

"Businessmen in other countries hardly can influence the bank boards. But the picture in Bangladesh is completely opposite, which ultimately results in weakening good governance in the corporate sector," he noted.

No borrower was labelled a defaulter throughout 2020 even though they did not pay the instalments thanks to the central bank's relaxed repayment policies aimed to protect the Covid-hit businessmen. In 2021, businessmen could avoid defaulting by paying as little as 15% of the loans.

But the policy relaxations met with unbridled default loans totalling to more than Tk1.03 lakh crore at the end of 2021 – Tk14,539 crore more than previous 2020.

"Banks have been waiving interest to recover the bad loans. But on the contrary, the debt is defaulting just after a couple of months," a banker told The Business Standard seeking anonymity.  

Referring to the rising default loan, the banker said loan recovery in 2021 amounted to Tk4,500 crore – less than Tk5,802 crore in 2020.

However, Selim RF Hussain, managing director of Brac Bank, advocated for interest waiver and said it is better than nothing if banks can get back some of their money by offering the facility.  

Meanwhile, rising default loans coupled with more loan write-offs are holding back banks in clocking profit, as the written off loans require cent percent loan provisioning.        

Since the facility was introduced in 2003, a total of Tk58,468 crore has been written off till December 2021. Banks wrote off more than Tk2,440 crore till December 2021, while the amount in previous year was Tk970 crore.

Selim RF Hussain said write-offs help banks keep the balance sheets clear.

"Many people think banks keep money from the deposits for loan write-offs. Actually, banks do the provisioning with their operating profits," he added.

According to the central bank, ten banks failed to maintain their capital base by the end of 2021 as their capital shortfall stood at Tk34,639 crore.