The total bad debt in the Bangladesh banking sector grew by 23% in the 12 months to the end of September as the country’s financial institutions continue to struggle with default loans.
At the end of September last year, the bad debt stood at Tk65,731 crore but a year later, the figure has swollen to more than Tk80,307 crore, data released by the Bangladesh Bank on Tuesday showed.
In the last three months alone, the amount has increased by Tk6,159 crore.
Banks in Bangladesh granted loans of Tk7,52,730 crore until September 30 this year. Of this amount, Tk80,307 crore or 10.67% are bad loans, the data showed.
Until June this year, the defaulted loan stood at Tk74,148 crore - or 10.13% of the disbursed amount.
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Bangladesh Bank Deputy Governor SK Sur Chowdhury said the central bank had taken measures to rein in bad loans.
“We have strengthened monitoring on other banks and have directed them to make sure there are no new default loans,” he said.
Former Bangladesh Bank governor Salehuddin Ahmed blamed the “absence of good governance” in the banking sector for the rise in bad debts.
“The continuous increase in bad loans is worrying, not only for the banking sector but also for the whole economy,” he said.
“The banks have to keep provisions against default loans. The banks’ capitals face deficit. The capabilities of the banks go down with an increase in default loans.”
The central bank issues a report on bad debts every three months. But apart from that, there are default loans in the banking sector that the banks write off, bringing down bad loans to some extent.
Also Read- Bankers responsible for defaulted loans
Economists, however, say the written off loans are also defaulted loans. Banks exclude some of the loans they had disbursed from the balance sheets if there is little or no chance of recovering them.
People involved in the sector say bad debts have increased as loans are sometimes approved on political consideration while directors of the banks take loans from each other’s institutions.
Defaulted loans stood at Tk22.644 crore at the end of 2011, which was 6.12% of the total disbursed loan until then.
Central bank data show that six state-owned banks have the highest amount of default loans.
By the end of September, the total bad debt of Sonali, Janata, Agrani, Rupali, Basic and BDBL stood at Tk38,517 crore. These banks had disbursed loans of Tk131,689 crore and are now facing capital shortages with the rise in bad loans.
Agrani Bank Chairman Zaid Bakht said the banks were trying to bring down default loans ahead of December. He noted that his bank’s bad debts had come down and would decrease further.
Also Read- No sign of relief from default loans
The Bangladesh Bank report shows that 23.79% loans disbursed by specialised Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank have turned into default loans.
Until the end of September, these banks disbursed Tk23,193 crore, of which Tk5,518 crore is bad debt.
The amount of irrecoverable loans is not coming down despite the central bank’s directives to the commercial banks to increase supervision.
In September, local private banks had default loans of Tk33,973 crore or 5.97% of the total disbursed amount. Bad loans have increased by Tk2,245 since June.
At the end of September, the total bad debt for foreign banks operating in Bangladesh stood at Tk2,298 crore or 7.89% of the disbursed Tk29,116 crore.
This article was first published on Bangla Tribune