The extent of writing off bad loans has been intensified recently as it witnessed four times higher at Tk11.65bn in April-June quarter than the previous quarter's Tk3.22bn.
The total written off loans in the banking sector stood at around Tk253bn up to June 2013, according to Bangladesh Bank statistics. The written off loans would be around 5% of the total loans and advances of Tk4.25tn the commercial banks disbursed till May this year.
The written-off loans help the banks clear balance sheets, but reduce their capital base and profits. Such loans also create a negative impact on their business and investment.
Of the total written-off loans, the private commercial banks (PCBs) share the most with Tk109bn, followed by state-owned commercial banks (SCBs) Tk107bn, foreign commercial banks (FCBs) Tk3.69bn and development financial institutions (DFIs) Tk32.59bn in June.
The corresponding amount of such written-off loans was PCBs Tk103bn, SCBs Tk102.51bn, FCBs Tk3.32bn and DFIs Tk32.37bn respectively in March 2013 while it was Tk100bn, Tk102.49bn, Tk3.14bn and Tk32.37bn respectively in December 2012.
In the last quarter written off loans of SCBs increased by Tk4.69bn, PCBs Tk6.37bn and FCBs Tk370m compared to the previous quarter. The extent of written-off loans was increasing continuously, making Bangladesh Bank worried.
A senior executive of the central bank said the written-off loans of the state-owned banks increased as the loans were disbursed mostly on political consideration. As a result, loan recovery is not regular.
The borrowers, however, passed their responsibility on the short supply of gas and electricity that affected production as well as repayment of the bank loans, he said.
According to the BB policy in writing off the bad loans, banks may, at any time, write off loans classified as bad or loss. Those loans which have been classified as bad or loss for the last five years and for which 100% provisions have been kept should be written off without delay.
Banks may write off loans by debiting to their current year's income account where 100% provision kept is not found adequate for writing off such loans.
All out efforts should be made to realise the written off loans. Cases must be filed in the court of law before writing off any loan for which no legal action has been initiated earlier.
A separate "Debt Collection Unit" should be set up in the bank for recovery of written off loans.
In order to accelerate the settlement of law suits filed against the written off loans or to realise the receivable written off loans, any agency outside the bank can be engaged.
A separate ledger must be maintained for written off loans and in the Annual Report/Balance Sheet of banks there must be a separate "notes to the accounts" containing amount of cumulative and current year's loan written off.
