Defaulted loans at NBFIs soar 12% in Q2

Infographic: TBS

Defaulted loans at non-bank financial institutions (NBFI) edged up around 12% in the April-June quarter, according to a central bank report, thanks to lending anomalies and winding down Covid-led repayment facilities.

The NBFI defaulted loan was Tk14,232 crore in the first quarter of 2022, which spiked by Tk1,702 crore at the end of June, shows the Quarterly Financial Stability Assessment Report of the Bangladesh Bank.

Sector people say the credit disbursement process by NBFIs is less transparent than banks. The institutions are now suffering as they had lent money to ghost companies without adequate verification.

Besides, the end of repayment facilities in March, which had been for two years during the pandemic, also contributed to the rise in NBFI defaulted loans.   

"Loans disbursed by almost half of the financial institutions are now in serious trouble. Defaulted loans of many institutions are between 50%-90% of their total loans," a senior central bank official told The Business Standard.   

"Many NBFI clients still do not bother about repayment despite most of the facilities ending in March. There are also willful defaulters," added the official.  

According to the new central bank guideline, if the NBFI clients repay 50% of the instalment payable till December this year, they will not be labelled as defaulter. No additional fee or fine will be applicable on them during the time either.

In the January-March quarter of 2021, NBFI defaulted loan was Tk10,354 crore. In the next quarter, the amount dropped to Tk10,328 crore. The amount ticked up to Tk11,757 crore. Since then, NBFI defaulted loans have been on the rise.

Emphasising transparency in credit disbursement, former Bangladesh Bank governor Salehuddin Ahmed suggested the central bank merging fragile NBFIs with reputed financial institutions or banks.    

He also called for a separate refinancing scheme by the central bank for the NBFIs. "To avail 5% scheme facilities, the NBFIs could be instructed to lend money to some specific sectors with 9% interest. This will help reduce the defaulted loan and make the institution profitable eventually."  

To discipline the NFBIs, the central bank has issued a host of directives including Bangladesh Bank approval for board director appointment and removal. The board directors will also have to have a minimum ten years of business experience and their ventures must not be a defaulted client.   

In the country's banking sector, defaulted loans shot up by Tk22,000 crore in the first six months of the current year after the end of the moratorium facility in December last year.

Defaulted loans at banks stood at Tk1.25 lakh crore at the end of June from Tk1.03 lakh crore in December last year, according to the Bangladesh Bank.

The banking sector saw a sharp rise of Tk11,816 crore in defaulted loans in the April-June quarter, taking the rate to 8.96%. In the January-March quarter, the defaulted loan rose by Tk10,167 crore.