Default loans rise Tk3,606cr amid pandemic

Default loans in the banking sector increased by Tk3,606 crore during the April-June quarter of the current year despite a waiver of loan repayments during the pandemic.

Bankers said default loans will spike further in the third quarter when banks will accumulate the due instalments of borrowers who will not repay loans using an extension of the waiver on loan repayments till September.

According to the central bank's recently approved data, the total amount of default loans stood at Tk96,116 crore at the end of June, which was 9.16 percent of the total disbursement and outstanding loan of 59 banks operating in the country.

At the end of June, total bank loans stood at around Tk10.50 lakh crore, said a senior official of the Bangladesh Bank.

The total default loan was Tk92,510 crore at the end of March, which was 9 percent of the total outstanding loans of that time.

Explaining the reason of the rise in default loans, Bangladesh Bank spokesperson Md Serajul Islam said, "Banks did not mark any borrower as a new defaulter during these three months (April-June). But they were processing some default loans for rescheduling which they previously calculated as regular loans.

"The rescheduling process could not be completed during the pandemic. So, banks were bound to mark those loans as classified."

Earlier on March 19, the Bangladesh Bank, as part of its crisis management strategy, directed banks not to classify any loans if borrowers fail to repay those during the pandemic.

The facility had been announced for a period of six months till June this year. On June 15, the central bank extended the facility for further three months till September.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said default loans would increase more if the central bank did not impose the embargo on classification upon borrowers' failure to repay.

Most of the borrowers are facing a challenging situation owing to the ongoing Covid-19 pandemic, he added.

For the imposition of the single-digit interest rate on lending facilities from April 1, many banks are facing odd situations to implement it amid the pandemic, said a private bank's managing director.

During this pandemic, most of the banks were on the losing trend in operating income and profitability as the economy was stagnant. The economy is yet to come to full life.

Moreover, banks have to disburse loans to implement the government-declared stimulus packages, to which the central bank contributes half as a refinance.

Default loans had shown a downward trend since last December due to a loan rescheduling spree under a special package at 2 percent down payment offered by the Bangladesh Bank in May last year.

The government's lenient rescheduling policy apparently paid off as default loans fell drastically by Tk22,000 crore in three months till December last year.

The default loan rate, which went up to a decade-high of 12 percent in September last year, came down to 9.19 percent in December, which was the lowest in the previous four years.