Jan-Jun loan recovery by state banks from top defaulters below 6% of yearly target

Six state banks in the country collectively recovered Tk119.38  crore from their respective top 20 defaulters in the first six months of this year, which is less than 6% of the annual recovery target of Tk2,045 crore, according to the latest available data.

The six lenders – Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank, Bangladesh Development Bank, and BASIC Bank – had a total of Tk21,187 crore in classified loans with these large borrowers as of December last, as shown in a report presented at a meeting of the Financial Institutions Division in October. The Business Standard has obtained a copy of the report.

There was no significant improvement in the recovery of these loans even in the third quarter of the year, an official of the Bangladesh Bank told TBS.

Among the six banks, Sonali has the worst recovery rate in the first half of this year as the biggest state-owned commercial bank could recoup a paltry Tk38 lakh out of Tk4,284 crore in default loans with its top 20 defaulters, which is 0.13% of its default loan recovery target of Tk300 crore set for the year.

On the other hand, Agrani Bank posted the highest loan recovery rate from its top defaulters during the January-June period – the bank could recoup Tk87 crore, which is 29% of its annual recovery target of Tk300 crore. The lender has Tk2,945 crore in default loans with its top 20 borrowers. 

Janata Bank, which has the highest Tk8,109 crore stuck with its top 20 defaulters, managed to recoup Tk10 crore or 1.25% against its annual default loan recovery target of Tk800 crore.

During the same period, Rupali Bank recovered Tk2 crore – 0.6% of its yearly default loan recovery target of Tk335 crore, BASIC Bank Tk18 crore – 6% of its recovery target of Tk300 crore, and BDBL collected Tk2 crore – 20% of its annual target of Tk10 crore.

Sources told TBS that stakeholders present at the Financial Institutions Division's October meeting noted that the top 20 defaulters of each of the public banks account for the lion's share of the total classified loans of the banks. Therefore, if these loans are recovered, the classified loans of the banks will decrease to a great extent.

They also commented that the picture of loan recovery from the top defaulters is disappointing.

A senior official of the central bank said that the state-owned banks are in trouble mainly because of the default on large loans.

"Incidents such as Sonali Bank's Hallmark scam and Janata Bank's Entex, Bismillah, and Crescent Group's loan fraud have taken place. Due to irregularities and corruption, the condition of BASIC Bank is not good either. Financial crimes one after another also have taken place in Agrani Bank and Rupali Bank. For all these reasons, the default loan situation in banks is not good.|"

There was no significant progress in the recovery of these defaulted loans even until September, the central bank official added.

Asked about the issue, Sonali Bank Managing Director and CEO Md Afzal Karim said, "We make all kinds of efforts, including issuing demand letters and contacting the borrowers personally to recover loans. If all these efforts fail to help in a recovery of the loans, the bank files cases against the defaulters. That is how we proceed. Now we cannot talk about the repayment capacity of the customers."

Referring to the recovery from defaulted loans, he said, "We do not only work with the top 20 defaulters, but we also try to recover all defaulted loans. Our classified loans decreased in September compared to June due to various measures. I hope this will go further down in December."

Recovery of written-off loans at snail's pace

The picture of the recovery of written-off loans by the state-owned banks is also very dismal.

In the first six months of this year, the six government commercial banks managed to recover only Tk182 crore in written-off loans, which is 11.47% of the target of Tk1,587 crore set for the year.

A senior official of the central bank told TBS that when defaulted loans are excluded from the balance sheet of a bank and kept separately, they are called written-off loans. Even if written-off loans are not shown in the balance sheet, banks continue efforts to recover these loans, the official said, adding this creates an opportunity for banks to show the default amount less in their annual financial report.

Since 2003, the Bangladesh Bank has been providing banks with the opportunity to write off loans.

According to the report presented at the Financial Institutions Division meeting, Sonali Bank collected Tk69 crore in January-June this year against the annual target of recovering Tk683 crore in written-off loans.

Meanwhile, Janata Bank recovered Tk70 crore against a target of Tk341 crore, Agrani Bank Tk33 crore against Tk405 crore, Rupali Bank Tk4 crore against Tk59 crore, BDBL Tk5 crore against Tk15 crore, and BASIC Bank collected Tk1 crore against its annual target of recovering Tk84 crore in written-off loans.

At the end of June this year, the total amount of written-off loans of six state-owned banks stood at Tk17,584 crore, of which Sonali Bank has Tk6,776 crore, Janata Bank Tk3,349 crore, Agrani Bank Tk4,018 crore, BDBL Tk1,507 crore, Rupali Tk586 crore, and BASIC Bank Tk1,348 crore.

The report observed that the track record of no bank in terms of the recovery of written-off loans is not satisfactory, adding that recovery of such loans is very difficult but must be done carefully.

The report also suggested taking all kinds of steps to increase the loan recovery rate.

A general picture of default loan recovery

Janata Bank set a target of collecting Tk1,240 crore from its defaulted loans this year but managed to recover only Tk105 crore in the first six months of the year.

The situation is almost the same with other banks.

According to the report, Sonali Bank managed to collect Tk165 crore in January-June against its annual target of Tk1,000 crore, while Agrani Bank could collect Tk248 crore against a similar target.

Besides, during the first half of the year, BASIC Bank managed to collect Tk146 crore against its annual target of Tk1,200 crore, Rupali Bank Tk117 crore against Tk670 crore, and BDBL collected Tk16 crore against its annual target of Tk98 crore.

State-owned Sonali, Janata, Agrani, and Rupali banks were converted into limited companies in 2007. Dr AB Mirza Azizul Islam was the finance adviser to the caretaker government at the time. He told TBS that rescheduled and written-off loans, loans stuck in lawsuits, are also part of non-performing loans. This means the actual amount of defaulted loans is several times higher than the amount the institutions show in their accounts.

The situation in banks is not improving due to a lack of efficiency and good governance, observed the noted economist.