'Unless political will from both the opposition and the ruling parties, it is very difficult to come out of the bad culture of default loans'
Though it is a much-talked-about issue on default loans and everyone has thirst for relief from the nuisance, the country’s banking sector is unlikely to get rid of such ‘bad culture’ anytime soon.
Experts opine that time is up to eradicate this malignancy in the country’s economic driver as the national polls are nearing.
They said it is quite impossible to operate banking sector without default loans as there are ups and downs in loan recovery, but the concern is the wilful loan defaulters. Such debtors take the credit willing to be defaulters, and most of them have political link with incumbent governments.
Talking to the Dhaka Tribune yesterday, former Finance Adviser to the Caretaker Government AB Mirza Azizul Islam said: “One of the major reasons for the increase in loan defaulters is the sanction of credit on political consideration. For this, the banks failed to recover those loans.”
“There are habituated defaulters and they are in big numbers affiliated with political parties. The government has to identify them and take measures to realise loan from them,” Research Director of the Centre for Policy Dialogue (CPD) Khondaker Golam Moazzem told the Dhaka Tribune.
“Unless political will from both the opposition and the ruling parties, it is very difficult to come out of the bad culture of default loans.”
The time to bell the cats (loan defaulters) has gone. One has to understand political economy in this regard
As the incumbent government is in its outgoing period and the election is nearing, it is quite difficult for the government to take steps to stop loan disbursment and also recover from defaulters.
Thus the number of loan defaulters would not come down, rather increase in the upcoming months till the end of 2018, according to experts.
Economists stressed the need for political decision to come out of the loan default culture. There is a very little scope to stop loan default culture in near future as big businesses are involved in such anomalies, they added.
“If you look at our neighbouring country, India, the Modi government has taken steps to stabilise the financial sector soon after ascending to power. It was impossible before the election year,” an economist of one of the country’s leading independent think-tanks told the Dhaka Tribune.
“In the context of our country, the time to bell the cats (loan defaulters) has gone. One has to understand political economy in this regard,” he added.
Besides political affiliation, experts also blamed the culture of impunity, weakness of existing laws and lack of technical expertise that help loan defaulters to swindle money from the banks, especially from the state-owned banks.
“Default loan is on the rise since bankers did not maintain proper rules and regulations in disbursing and recovering loans,” said AB Mirza Azizul Islam.
He also said: “Taking the advantage of weakness of existing laws, some vested intersts took the loans and turned defaulters, but they yet to be punished, which also encourage others to be defaulter. Thus good borrowers become frustrated.”
“Artha Rin Adalat Ain (Financial Loan Court Act) needs to be upgraded so that none can take the opportunity of procrastination and ultimately escape it. Bangladesh government can declare defaulter as bankrupt but it must have transparent and proper law in this regard,” said Khondaker Golam Moazzem.
“Banks lack technical experts in analysing the eligibility of an organisation in getting loan amount sought by it. Even, it was noticed that the Credit Information Bureau (CIB) report was not properly done in checking eligibility of a client. On the other hand corruption in approving loans is another reason for default loans. The loanees escape some of the conditions in exchange of money,” said Moazzem.
He also said the default loans have a negative impact on new investment as the banks could not disburse loan on lower interest due to default loans.
“If there is an availability of funds in the banks, it would not leave much impact on investment, but the default loans create pressure on banks, which forced the banks to keep the interest rate at higher mark. Thus, the new investment projects are discouraged,” added Moazzem.
Finance Minister AMA Muhith told the Parliament on Monday about the overall defaulted loans in the banking sector and disclosed 100 top defaulters.
According to Muhith, financial institutions in Bangladesh currently have a default loan of Tk1,11,347 crore as of April this year.
He, however, did not give the amount of default loans against the individual defaulters.
He did not also disclose how many loan defaulters were in the country.
On June 20, he had informed the Parliament that 2,02,623 individuals or companies, who borrowed money from 55 state-run and private commercial banks, defaulted on their loans till March 2017.
According to Bangladesh Bank data, the defaulted loans in the banking sector increased to Tk73,409 crore as of March 30, 2017 from Tk62,172.32 crore as of December 31, 2016.
The amount of defaulted loans and the write-offs in the banking sector together stood at Tk1,18,099.64 crore at the end of the first quarter – January to March – of 2017.
The SoBs are the most sufferers of default loans followed by Private Commercial Banks and Foreign ones.
Contacted, Managing Director (MD) and Chief Executive Officer (CEO) of Rupali Bank Md Ataur Rahman Prodhan told the Dhaka Tribune, “Though the figure in the latest data of default loans have seen a higher mark, the number of defaulters has decreased in recent times as we are more alert on disbursing loans.”
“The number of defaulters had increased as some defaulters, who were out of the default list, have been included into the list as per the central bank directives.”
Calling for upgradation of the existing laws in recovering the default loans, Md Ataur Rahman Prodhan said: “There is a need of modernising the laws related to realising the default loans.”
“It has been found that, once, we lodged a case against any defaulter and the defaulter files a writ against us. When the court rejects the defaulter’s appeal, he can files the writ again against the same case. Such kind of complexity is a hindrance towards recovering default loans.”
The Rupali Bank CEO also emphasised the need for creation of social awareness against loan defaulters and also called for social avoidance of the defaulters.
Prodhan termed the default loans an alarming for the country’s banking sector, urging all banksers to remain alert against default loans in the days to come.
Mentionable, banks are losing out on revenues continuously, thanks to the growing default culture, since banks have to keep provision against the bad loans from their incomes.
The situation is aweful in the state-owned banks that requre infiltration of capital from public money to remain functional.
The government injected a total of Tk13,705 crore as recapitalisation fund into the SoBs from FY2009-10 to 2016-17.
The finance minister also proposed to allocate Tk2,000 crore for recapitalisation during the Fiscal Year 2017-18.