93% sour loans in 3 months belong to 11 banks

Only 11 banks accounted for 93% of the staggering Tk24,419 crore in loans defaulted in the three months through June.

The high level of default loans left the Bangladesh Bank worried about meeting the IMF's conditions to avail a loan package.

In a report last week, the Bangladesh Bank said it is concerned that defaulted loans are increasing at an unusual rate. The central bank also believes that special supervision is necessary to determine why defaulted loans are increasing.

Agrani, BASIC, Janata, Rupali, AB, IFIC, Mercantile, National, NCC, One, and Southeast Bank recorded the highest amount of non-performing loans (NPLs) in the April-June quarter this year.

According to data from the central bank, default loans at 10 of the banks increased between Tk400 crore and Tk1,800 crore.

Janata Bank alone recorded a Tk13,655 crore increase in its default loans in the April-June quarter. This took its total default loans to Tk28,542 crore, which is 32.64% of its total loan disbursed.

AB Bank and National Bank had the highest amount of NPLs among the private banks.

Bankers said since the beginning of this year, the special exemption for loan repayments that had been available since Covid has been withdrawn. 

Former central bank governor Salehuddin Ahmed said the increase in LPLs is very worrying for the banking sector and put the blame on the policy exemptions.

"The more such benefits are given, the more defaulted loans will increase. Rescheduled loans are also defaulting now. It is the wrong policy of the Bangladesh Bank," he said.

"Banks should be directly notified of default without rescheduling facilities. Instead of doing so, more facilities are being given, resulting in a higher rate of increase in defaulted loans."

Salehuddin Ahmed said credit cards, online services, and various facilities of banks are stopped in cases of default in different countries.

"They are not even allowed to board planes or metros. But in Bangladesh, it is the opposite. Those who do not obey the law are given more privileges. In the past few years, the amount of defaulted loans has increased. It is mainly due to the weak and wrong decisions of the central bank," he added.

The Bangladesh Bank has to strengthen its efforts to bring down the defaulted loans.

Bankers also attributed the increase in defaulted loans to the global economic slowdown, saying that many businessmen are unable to repay their loans because business has slowed.

They also said the NPLs of state-owned banks have increased unusually, leading to a significant rise in the overall NPLs.

One of the conditions of the IMF's $4.7 billion loan agreement with Bangladesh was to reduce the banking sector's NPLs below 5%.

But the NPLs are increasing. According to the central bank, the defaulted loans of six state-owned banks amounted to Tk74,454 crore, which is 25% of their total loans disbursed.

Private banks' defaulted loans were 6.46% of their total loans, and for the foreign banks operating in Bangladesh, the percentage of defaulted loans was 4.80%.

The central bank in the recent report also said it has strengthened its policies to deal with the problem banks by signing memoranda of understanding (MoUs) and intensifying internal inspections to mitigate the NPLs.

The central bank is also in the process of issuing guidelines on prompt corrective action (PCA), which will empower the monetary authority to intervene early and to take corrective action for weak banks.

According to central bank data, at the end of June, the amount of defaulted loans in the banking sector amounted to Tk156 lakh crore, which is 10.11% of the total loans.

Three months earlier, the NPLs stood at Tk1.31 lakh crore, which is 8.80% of the total loans. The top 10 banks have Tk1.1 lakh crore of total defaulted loans in the banking sector.

Anis A Khan, former managing director of Mutual Trust Bank and former chairman of the Association of Bankers, Bangladesh (ABB), told The Business Standard that there has been a huge jump in classified loans.

"I predicted long ago that our classified loans would increase significantly in the coming days. One of the reasons for this was the opportunity to understate classified loans due to deferral and rescheduling facilities. Their terms have expired, but the businessmen cannot pay the loan instalments either. Hence, the total classified loans increased significantly as the loans were reclassified," he added.

Mentioning that a large part of these classified loans are intentional defaulters, the banker said, "A large part of the classified loans we have are not returning the loans intentionally. Here, the central bank is trying to reduce classified loans, but there is not much they can do.''