Total default loans from non-bank financial institutions (NBFIs) for January-March period of this year stood at Tk14,232 crore, about 20.63% of the total loans disbursed until the end of March.
It is also 37.45% higher year-on-year (YoY), according to the Bangladesh Bank's latest quarterly financial stability assessment report.
In just three months, defaulted loans in this sector rose by Tk1,216 crore, or 9.34% more.
The amount of default loans in the previous quarter (October-December of 2021) was Tk13,016 crore.
According to central bank data, total default loans of the sector were Tk10,354 crore at the end of March 2021, which was reduced by only Tk25 crore in the next quarter (April-June).
In the July-September quarter of the same year, default loans jumped by Tk1,429 crore to Tk11,757 crore and by Tk1,259 crore to Tk13,016 crore in the October-December quarter.
An insider said that at least half of the NBFIs were in critical financial condition now, while many struggled with as much as 50-90% of their total default loans.
With the withdrawal of the loan repayment facility, popularly known as a moratorium, the number of new defaulters increased again.
Banking sector’s health deteriorating
In the banking sector, the situation involving default loans is even worse.
According to Bangladesh Bank, 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, the highest ever amount of default loans was recorded at Tk116,288 crore.
After the first quarter of 2022, non-performing loans (NPLs) reached Tk113,441 crore.
Even Finance Minister AHM Mustafa Kamal, in his budget speech last week, accepted that default loans were one of the major obstacles to the development of an efficient and modern banking system.
AB Mirza Azizul Islam, economist and financial adviser to a caretaker government, said that increasing defaulted loans was an old habit of borrowers.
"If loan defaulters are repeatedly given benefits and the term of the loan is extended and a one-time installment facility is given, it will lead to an increase in the list of defaulters," he also said.
He further said that to get rid of debt defaulters, effective action should be taken immediately.
Failure to do so will result in borrowers taking advantage. As a result, other borrowers will not be interested in repaying loans, he added.
FY23 budget proposal on default loans
The government has proposed an income tax on waived interest against default loans disbursed by banks and financial institutions in the budget for fiscal year 2022-23.
Earlier, neither companies nor individuals needed to pay that.
Finance Minister Kamal said: “We are continuing our effort to get out of the loan default culture. They are provided with a scope of a rescheduling facility by paying a down payment of only 2%. Capitalizing on the policy, as many as 13,307 borrowers made their loans regular."
According to the central bank, Tk1,578 crore in loan interest was waived in the Covid-hit year of 2020 and Tk1,855 crore in 2021.
Do not write off default loans, BB tells NBFIs
On June 7, Bangladesh Bank asked NBFIs not to write off default loans swindled by scammers.
Lawsuit has to be filed against the scammers, who siphoned off the funds from the NBFIs under the guise of taking loans, according to a Bangladesh Bank notice.
According to the central bank sources, some scammers have recently taken loans from NBFIs by showing non-existing businesses that have already dealt a blow to the corporate governance in the NBFI sector. The central bank has recently found that a group of NBFIs wrote off non-performing loans (NPL) taken by scammers.
As per the rules, NBFIs can write off the default loans, which have remained in the bad category of NPLs for at least three years.
NBFIs must keep at least 100% provisions against bad loans.
The weakness of the NBFI sector was revealed after PK Halder and his associates had laundered about Tk 2,500 crore from three NBFIs -- International Leasing and Financial Services, Peoples Leasing and FAS Finance and Investment.
On the run for about two years, Halder was arrested in India last month.
He was the former managing director of Reliance Finance and NRB Global Bank.