Banks’ non-performing loans (NPLs) increased by Tk3,606 crore in the second quarter of this year, despite the Bangladesh Bank’s directive not to classify loans till September due to consequences arising from the new virus.
At the end of June this year, the amount of NPLs in the banking sector stood at Tk96,116 crore, which was 9.16% of the total disbursed loans, according to the latest Bangladesh Bank (BB) data.
The defaulted loans in the banking sector were Tk92,510 crore as of March this year.
Bad loans had increased in the April quarter for some technical reasons, said a high official of the BB.
He said banks typically finalized their annual financial statements in March of next year after the BB’s inspections were completed. Banks tended to conceal the amount of NPLs, particularly in the first quarter of a calendar year, which was eventually added in the NPL amount of the second quarter.
As a result, defaulted loans for the March quarter increased almost every year, he explained.
“But this year, banks could not prepare their financial statements for 2019 within the deadline and the BB’s inspections were also deferred due to the coronavirus pandemic. Consequently, the defaulted loans of the banking sector increased in the June quarter instead of the March quarter,” said the BB official, seeking anonymity.
Talking to Dhaka Tribune, Pubali Bank managing director Abdul Halim Chowdhury said NPLs had increased in the second quarter as the BB had not allowed loan regularization in the financial statements of banks for 2019.
NPLs would decline in the September quarter of this year as the BB had asked banks not to downgrade any defaulting loans till September, he added.
On June 15 this year, the BB asked banks not to downgrade any loan over a failure to pay installments in the January-September period in order to help business people combat the economic fallout of Covid-19.
"It may have increased for some technical reason, as a regulatory restriction on degrading loans was in place and will remain valid till September this year," said Ahsan H Mansur, executive director of the Policy Research Institute.
"Given the regulatory forbearance of the BB, the non-performing loans data has become meaningless as a major portion of the outstanding loans became irregular due to non-payment," said Mansur, who is also chairman of Brac Bank.
The BB should extend the deadline on degrading loans further in a way that businesses could regain their strength within the period, suggested the economist.
At the end of June, the ratio of bad loans in the country’s banking sector increased to 9.16% against outstanding loans worth Tk10,49,725 crore.
In March, the NPL ratio in the country’s banking sector was 9.03% against Tk10,24,498 crore in outstanding loans.
Non-performing loans declined by Tk1,821 crore in three months to Tk92,510 crore till March this year.
Non-performing loans in the country’s banking sector hit an all-time high at Tk1,16,288 crore at the end of September 2019, but the figure dropped to Tk94,331 crore as of December 31, 2019, owing to the BB’s easy loan rescheduling policy.
