Loan rescheduling surges by Tk7,300cr in Jan-Sep 2023

Infograph: TBS

Banks rescheduled Tk18,811 crore of their defaulted loans in the January-September period of last year, marking an increase of around 63% year-on-year, or Tk7,300 crore, according to data from the Bangladesh Bank.

In the first three quarters of 2022, rescheduling stood at Tk11,511 crore. However, in the final quarter alone, banks rescheduled loans to the tune of Tk17,768 crore, which caused a decrease in defaulted loans by about Tk13,740 crore.

Bankers say the central bank empowered banks to reschedule their loans on their own in September 2022. Since then, the rescheduling has increased to an average of over Tk5,000 crore per quarter, compared to an average of Tk2,000-3,000 crore earlier.

A senior central bank official said debt rescheduling has now been significantly eased. Since September 2022 onwards, a bank can reschedule a loan with only a 2-4% down payment. Previously, some customers were required to make an 8-10% down payment.

"Now borrowers are rescheduling loans in coordination with banks. Previously, they had to go to the central bank and wait for approval," he added.

Interest waiver drops

During the first three quarters of last year, banks waived interest to the tune of Tk744 crore while rescheduling loans, marking a significant decline in interest waivers compared to Tk3,165 crore in 2022.

The managing director of a state-owned bank told TBS that even if rescheduling increases, the interest waiver will decrease because the central bank has issued a circular specifying which loan interest can be waived.

"The clarification on how much interest a loan is forgivable has significantly reduced interest waivers," he added.

Ahsan H Mansur, executive director of the Policy Research Institute, told TBS, "Rescheduling and interest waivers have become part of our culture. Many loans were disbursed during Covid, so we need to check if they are being repaid.

"If someone engages in corruption, their liability affects other good borrowers as well. The burden of one's corruption falls on another. Corruption affects the profits of depositors to cover losses. If this continues, there is a risk that the financial strength of banks will decrease."

He also mentioned that sometimes interest is waived for small and medium borrowers, which is reasonable considering the customers' circumstances. He emphasised that the central bank should ensure that no one is taking illegal benefits in the name of an interest waiver.

According to the latest updated report of the central bank, the country's total non-performing loans at the end of September 2023 stood at Tk1.55 lakh crore, representing 9.93% of the total loan.

By the end of September 2023, the amount of debt rescheduling at banks stood at Tk2.17 lakh crore. Additionally, the amount of debt pending in money loan courts is Tk2.12 lakh crore. Apart from this, the write-off loan is Tk50,000 crore.

The central bank also committed to the IMF that it will reduce average NPL ratios to below 10% for state-owned commercial banks and below 5% for private commercial banks by 2026.

Currently, the NPL of state-owned banks is 21%, while the NPL of private banks is 7%.

Salahuddin Ahmed, a former governor of the Bangladesh Bank, told TBS, "It is not a big deal that rescheduling is increasing or decreasing in one quarter. The concern is that borrowers are being given benefits far beyond permissible levels, leading to worsening financial indicators for banks day by day.

"Before giving a loan to a customer, banks have to consider various aspects, including their repayment ability and competence. Banks are giving loans without proper scrutiny. I do not see the will of policymakers and the central bank to bring financial discipline," he added.