State-owned banks struggle to recover loans from top 20 defaulters

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Four state-owned banks have managed to collect a mere Tk119 crore from their top 20 defaulting borrowers in the first six months of 2023. This figure represents a dismal 5.43% of their ambitious target of collecting Tk2,190 crore from these defaulters.

Economists and bankers attribute this dismal performance to the ongoing economic slowdown and irregularities in loan disbursements.

The top 20 defaulting borrowers owe a staggering Tk23,421 crore to four state-owned banks — Agrani, Janata, Sonali, and Rupali Bank.

A senior official of the Bangladesh Bank raised concerns about the prevalence of irregularities in loan disbursements by state-owned banks, which often lead to loan defaults shortly after the funds are released. 

"Despite various initiatives aimed at recovering defaulted loans, complete recovery remains elusive. This is attributed to instances where loans were granted based on forged documents to individuals who were not genuine borrowers. Financial institutions must exercise greater caution in their loan disbursement practices, while the central bank should strengthen its oversight mechanisms," he told The Business Standard, wishing not to be named.

A central bank report revealed that the state-owned Janata Bank has a staggering outstanding amount of Tk8,739 crore owed by just the top 20 defaulting borrowers, which is a whopping 58% of the bank's total defaulted loans.

Out of a target of Tk870 crore for defaulted loan recovery from January to June, the Janata bank managed to collect a mere Tk16 crore, representing just 2% of the intended amount. Similarly, for cash recovery from written-off loans, the bank's target was Tk330 crore, but it only collected Tk28 crore.

Md Abdus Salam, former managing director and CEO of Janata Bank, said, "Recovering defaulted loans during the pre-election period is difficult. The sluggish business activity during this time has made it difficult for customers to repay their loans. Moreover, the global economic situation has adversely affected many businesses, further compounding the issue of loan defaults."

"Banks need to exercise greater caution when granting loans, particularly in sectors with a high risk of default," he said, also advocating for a more proactive role from the banks' loan recovery committees in addressing the issue of defaulted loans.

Regarding the low recovery rate of written-off loans, Abdus Salam said loans are only written off when there is a high degree of uncertainty surrounding their recovery. 

To deter loan defaults and encourage timely repayment, he called for implementing stricter legal measures, such as seizing borrowers' assets held by banks as collateral, imposing travel bans, or confiscating passports.

The central bank report also revealed that state-owned Agrani Bank has an outstanding amount of Tk6,854 crore owed by the top 20 defaulting borrowers, which is 45% of the bank's total defaulted loans. 

With a target of Tk685 crore for defaulted loan recovery from January to June, the Agrani bank has only managed to collect Tk12 crore, representing a mere 2% of the intended amount. In case of cash recovery from written-off loans, Agrani Bank collected Tk19 crore against the target of Tk400 crore.

Former Bangladesh Bank governor Dr Salehuddin Ahmed expressed concern over the excessive reliance of banks on the goodwill of large borrowers, highlighting the lack of effective measures to address loan defaults. 

He said banks are often left at the mercy of these borrowers, with limited options to recover outstanding debts.

The base of banks is weakened due to inadequate capital shortfall for years, a factor that erodes customer confidence and hampers transactions with foreign banks, the governor said, calling for proactive measures by the central bank to strengthen the capital structure of banks and enhance their ability to collect defaulted loans.

Sonali Bank's exposure to top 20 defaulters stands at a staggering Tk4,284 crore. Despite setting a collection target of Tk300 crore during the first six months of this year, the bank has only managed to recover a paltry Tk26 crore.

The bank's struggles extend to written-off loans as well. Out of a collection target of Tk500 crore for written-off loans in the first half of 2023, the bank has only been able to recoup Tk39 crore. 

And Rupali Bank has managed to collect Tk65 crore of its target collection of Tk335 crore, from its top 20 defaulting customers in the first six months of 2023. However, the bank has recovered the highest default loans among the state-owned banks.

According to the central bank's June 2023 report, five state-owned banks in Bangladesh hold a staggering Tk74,454 crore in non-performing loans (NPLs), amounting to a significant 25% of their total loan portfolio. This alarming figure stands in stark contrast to the overall banking sector's NPL ratio, which currently stands at a relatively moderate 8.16%.