Write-off loans grow as recovery low

Write-off loans have continued to swell with a declining trend in recovery, compounded by irregularities in disbursement, which have eventually led to a rise in defaulted amounts.

In the first nine months of 2021, banks removed around Tk974 crore from their balance sheets and recovered only Tk472 crore, according to Bangladesh Bank data.

Since the facility was introduced in 2003, lenders have written off Tk57,975 crore till September last year, which is 57.31% of the total defaulted loans in the banking sector.

Writing off bad loans is an exercise conducted by banks to clean up their balance sheets for tax benefits and capital optimisation.

Banks must maintain provision at a rate of 0.25% to 5% against unclassified or regular loans. But it will be between 20% and 100% depending on the quality of defaulted or classified loans.

Initially loans defaulted for more than five years could be written off but the time has now been brought down to three years.

To write off a bad loan, lenders must maintain 100% provision using their income or depositors' money.

Banks usually write off loans having the lowest prospect of recovery. However, these loans cannot be rescheduled or restructured, bankers said.

In recent times, there have been changes in the writing-off policy. Earlier, up to Tk50,000 could have been written off without filing a case with the Artha Rin Adalat – courts dedicated for dealing with loan-related complaints.

At present, up to Tk2 lakh can be written off without filing a case. Cashing in on the policy relaxation by the central bank, lenders have increased writing off their defaulted loans.

In the past few years, the amount of defaulted loans has increased significantly mainly owing to various irregularities in disbursement, said sector insiders.

In 2019, the Bangladesh Bank had provided a special opportunity for borrowers to regularise loans from Tk10 crore to Tk500 crore with a 2% down payment.

After the coronavirus had struck the country in 2020, the central bank extended the facility which finally came to an end in December last year.

Since the possibility of recovering such loans is thin, banks are treading the path of writing off defaulted loans to make the financial statements look clean.

After the recovery from this sector from 2003 to September last year, the net written off amount stood at Tk43,609.43 crore.

According to available data, the defaulted loans at six state-owned banks was Tk17,219 crore.

While it was over Tk24,953 crore at private banks, Tk1,071 crore at foreign banks, and Tk365 crore at specialised banks.

In 2019, banks wrote off Tk2,596.69 crore and collected Tk831 crore from the sector.

Lenders removed Tk970.59 crore from their balance sheets in 2020 when they recovered a little more than Tk736 crore.

Company law expert Barrister Tanjib-ul Alam said a significant number of loan-related cases remained suspended for years by High Court orders.

"In addition, trials of other cases are adjourned unreasonably at the Artha Rin Adalat. Due to a lack of proper training of judges, speedy disposal of these cases is not possible," he told The Business Standard.

He said, "The cases which are pending by High Court orders should be disposed of. The Bangladesh Bank has to take initiative for this. A list of cases stayed by High Court orders should be prepared and submitted to the Chief Justice through the law ministry which then may take necessary steps in consultation with the Chief Justice."

Barrister Tanjib-ul-Alam also mentioned that there is a need to increase the number of Artha Rin Adalat and judges and to manage these cases with efficient judges.

Former Bangladesh Bank governor Salehuddin Ahmed said, "In fact, loans are written off when it is seen that they cannot be repaid at all or there is unresponsiveness. However, writing off does not mean pardoning. Rather, it is kept in a special note after taking the amount away from the balance sheet."

He said, "However, loans should be written off very wisely. Because it would not be right to increase the written off amount too much."

Salehuddin Ahmed further said there are so many cases pending with the Artha Rin Adalat and that is why they are not disposed of easily.

"But, if there was an exemplary judgement in some big cases, the backlogs would have come down. Because not having such judgement is our weakness," he added.