Bangladesh Bank has suggested banks disburse large loan amounts in stages rather than all at once in order to ensure proper loan utilization and prevent money laundering.
The suggestion was made by the central bank in its “Money and Money Exchange Rate” quarterly report on Tuesday.
In order to lower the banks' overall classified loans, Bangladesh Bank stated in its report that banks must conduct proper assessments prior to issuing loans and make sure that the loans are used properly.
According to Bangladesh Bank data released on Sunday, the total amount of defaulted loans in banks increased significantly from Tk103,273 crore at the end of December 2021 to Tk120,656 crore at the end of December 2022.
According to bankers, the situation is getting worse despite promises from the government and the central bank to reduce defaulted loans.
88% of the total amount of defaulted loans — Tk106,982 crore — became bad loans that the central bank identified but were unable to be recovered.
By the end of December 2022, Tk1,477,788 crore in total loans were disbursed and 8.16% of those loans became classified. At the end of December 2021, the ratio was 7.93%.
The rise in the number of non-performing loans is predicted to have a number of negative effects, including shattering depositor confidence and slowing deposit growth in the banking sector.
In its report, Bangladesh Bank claimed that in order to reduce the likelihood of loan defaults, it had tightened bank loan monitoring and loan recovery procedures.
Additionally, it stated that Bangladesh Bank had been working to lessen loan defaults, address risks in the money and loan market, safeguard depositor interests, prevent an imbalance between assets and liabilities in the banking sector and encourage expansion of private sector credit for the purpose of sustaining economic growth.