A parliamentary sub-committee found non performing loans (NPLs) to be rising owing to a lack of collateral put forward by borrowers.
Many of state owned Sonali Bank's borrowers could not be traced and many of the loans had no collateral. However, what is most concerning is that the bank's annual recovery rate from large defaulters was less than 1%.
A very worrying scenario involving defaulting loans has been revealed by a parliamentary sub-committee, including not just such state-owned banks but also a few private commercial banks and non-banking financial institutions (NBFIs).
At a central committee meeting held at the Jatiya Sangsad Bhaban on November 28, the sub-committee presented its report.
Regarding their findings, Waseqa Ayesha Khan, MP and convener of the sub-committee told Dhaka Tribune: “We submitted the report not only on Sonali Bank but also several other banks and financial institutions. But I have nothing to say about its findings now. But since it (report) is public property it will surely be in the public domain.”
“But what I can say now is that our findings will be sent to the Bangladesh Bank and the Financial Institutions division of the Ministry of Finance,” she added.
To look into the financial irregularities of privately owned commercial banks such as Social Islami Bank, National Bank of Pakistan, National Finance, and Premium Leasing and Finance as well as the state-run Sonali Bank, this sub-committee was established on January 3, 2021.
The sub-committee issued 14 suggestions, some of which included taking legal action, quickly identifying wilful defaulters and restricting the board of directors of the banks' capacity to make loans.
In December 2020, Sonali Bank had 5,50,000 total defaulted loan clients and had collected a total of Tk17,762 crore.
In December 2021, the number of defaulted loan customers decreased to 3,76,000 but the amount of defaulted loans increased to Tk18,786 crore.
Until April this year defaulted loan customers increased again to 3,97,000 and the defaulted loans slightly reduced to Tk18,712 crore.
Data shows that, in comparison to the year 2020 (6.22%), recovery of defaulted loans increased slightly in 2021 (7.59%).
In April 2022, the number of defaulters above Tk10 crore was 309 and the amount of defaulted loans was Tk12,865 crore.
Against the total loan of the banks, the default rate is 16-17%.
The annual collection rate of these big defaulted loans is less than 1%, which is not satisfactory at all, the report stated.
The report also said, the amount of secured collateral against large loans is 60% of the debt, which is insufficient and data verification before lending was defective.
Social Islami Bank (SIBL) has not received any recovery in the four months till April this year against defaulters above Tk10 crore amounting to a total of Tk1,044 crore.
Most of the loans of this bank do not have collateral and the loans are given through personal guarantors and as a result, the larger borrowers tend to default.
Around 19% of National Finance's total debt (Tk643 crore) is classified to only 10 classified loan customers.
On April 22, the National Bank of Pakistan stated that its amount of bank loans and advances was Tk1,386 crore.
Out of this, against 120 defaulting borrowers, classified loans amounting to Tk1,369 crore is 98.78% of the total disbursement.
Among them, 46 defaulters are above Tk10 crore and the total amount of money is Tk1,056 crore.
Regarding this, the sub-committee said many of the loan customers could not be traced and many have no collateral against those loans.
Even with collateral, the sale process is complicated. Although the amount of collateral and the rate of realization are apparently good, the actual condition of the banks' defaulted loans is quite alarming.
