Non-Performing Loan (NPL) has reached Tk1,13,441 crore and economists and bankers think it's driven by the withdrawal of the relaxed loan classification policy.
According to the Bangladesh Bank’s latest data, default loans in the banking sector surged 19.3% year-on-year in the first quarter of 2022, which is just short of Tk2,847 crore to reach the amount of the country’s highest-ever defaulted loans.
In September 2019 default loans amounted to Tk116,288 crore and Tk95,085 crore in March 2021.
Economists and bankers think that, earlier, the central bank took several measures, including easing the loan rescheduling and classification rules, in order to get rid of NPLs.
But the moves have largely failed to produce expected results and restore the financial discipline in the banking sector, which is reflected in the higher default loans in the first quarter of this year.
Zahid Hussain, a former lead economist at the World Bank's Dhaka office told Dhaka Tribune: “Because of the policy in the two years of Covid-19, there were not many defaulters, although there were some.
“The defaulted loans have risen sharply since January after the moratorium facility was withdrawn by the central bank. And the biggest defaulters are the clients of both government and specialized banks.”
He says the number of habitual defaulters is going up, contributing to the increase in NPLs.
Bangladesh Bank data showed that 46.5% of the defaulted loans were with nine state-run banks.
NPLs in the state-run banks rose 11% year-on-year to Tk52,753 crore in March.
Forty-one private commercial banks held defaulted loans of Tk57,804 crore, up 28% from a year ago, while the NPLs in nine foreign banks increased to Tk2,885 crore from its previous Tk2,458 crore.
Speaking on the loan trend, the former lead economist of the World Bank said: “Large corporations take loans from these banks (Government and specialized banks). And because the pressure to return the money is less they do not repay the loans.
“The board of the banks often indulges in giving these loans, whereas the job of the board is to be careful about approving such loans and to control the administration of the bank.
“Entrepreneurs and businessmen are turning the defaulter trend into a business model. Sometimes they go to the courts without repaying the loan in order to buy more time.”
In a report on Sunday, the Centre for Policy Dialogue (CPD) said: “Due to the longstanding moratorium on loan classification, the current level of NPLs is hardly indicative of reality. It is apprehended that the actual volume of NPLs is far greater than the official figures.”
“It is anticipated that NPL will rise further in the coming days, as loans under the Covid-19 liquidity support packages were not provided in a transparent or accountable manner,” said the CPD.
According to the Bangladesh Bank's latest statistics, default loans increased 9.84% in March and stood at Tk1,03,274 crore, from the preceding quarter (Q4 of 2021).
The ratio of default loans accounted for 8.53% of outstanding loans in March, up from 8.07% a year earlier.
Salehuddin Ahmed, a former governor of the central bank, thinks a group of delinquent borrowers are not repaying loans using the pandemic as an excuse.
“The central bank has loosened its monitoring of the banking sector due to the ongoing foreign exchange crisis. The laxity in monitoring is not a positive sign for the financial sector.”
“Instead, the health of the banking sector should have been strengthened at this moment as the economy is now fighting against the global crisis stemming from the Russian-Ukraine war.
“So, I think the central bank should not entertain the FBCCI proposal since previous experiences of relaxed policies did not bring any positive for the economy.”
The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), the apex trade body of the country, has recently demanded the central bank extend the relaxed loan classification policy until December.
The share of NPLs also rose to 8.53% of the total outstanding loans in Q1 of 2022, from 7.93% in the previous quarter - as per the consolidated statement of classified loans covering both domestic and offshore banking units. It was 8.07% as of March 31, 2021.
Regarding the rising trend in NPLs Md Serajul Islam, spokesperson of the BB, told that: “The classified loans increased during the period under review (Q1) mainly due to a rise in the amount of total outstanding loans and advances in the banking sector.”
He thinks that this rising trend may continue in the next quarter (Q2) as well.
The total outstanding amount of written-off credits stood at Tk579.75 billion from 2003 until September last year.
In 2003, the central bank introduced the guidelines for writing off classified loans to improve loan recovery situations and make financial statements of the banks more transparent and accountable.
Although writing off loans is a global practice, it depends on the capability of the bank concerned to write off its loans.
Before making any final decision in this regard, the bank management has to ensure ‘cent-percent’ provisioning against the amount to be written off.