Bad loans shoot up in Bangladesh in 2018

Bad loans in the country’s banking system grew by 26.39 per cent in 2018, much higher than 19.51 per cent growth in 2017.
Non-performing loans in the banking sector increased by Tk 19,608.4 crore to Tk 93,911.4 crore on December 31, 2018 from Tk 74,303 crore at the end of December 2017.
As of December 31, 2018, such loans constituted 10.30 per cent of the total outstanding loans in the banking system while the figure was 9.31 per cent a year ago.
Defaulted loans in the private and state-owned commercial banks rose by 30 per cent during the period, according to the Bangladesh Bank data disclosed on Tuesday.
Former Bangladesh Bank deputy governor Khondokar Ibrahim Khaled told New Age on Tuesday that providing credit facility to politically connected people in violation of rules and regulations and giving clean chit to the perpetrators were fuelling continued rise in defaulted loans in Bangladesh.
‘In last seven-eight years, we have witnessed less supervision over the banking sector which have resulted in intensified irregularities in the country’s banking sector,’ he said.
It is a matter of time that the loans given on political influence in collaboration with bankers would become defaulted, said the former central bank deputy governor.
Although the finance minister has announced that defaulted loans would not increase further, it depends on whether the loans given illegally have already exhausted or not, he said.
Neither the central bank nor the finance ministry has taken any major step to contain such practice, he said.
The defaulted loan, however, dropped by 5.49 per cent or Tk 5,458.6 crore on December 31, 2018 from Tk 99,370 crore at the end of September 2018.
The classified loans declined in October-December quarter of 2018 mainly due to rescheduling by the banks for portraying better financial health of the institutions avoiding provisioning against the loans, a central bank official said.
He said that a number of influential businesspeople close to the government rescheduled their ‘large loans’, especially taken from the state-run commercial banks, ahead of national polls held on December 30, 2018.
Besides, easing the policy to write off loans to make banks’ financial statements look better partly contributed to the lower amount of classified loans in October-December 2018.
Finance minister AHM Mustafa Kamal immediately after assuming office announced that defaulted loans would increase no more.
There are three types of classified loans — substandard, doubtful and bad.
As per the central bank regulations, if a client fails to pay instalment for any loan for three months, the loan is considered as substandard one.
Banks have to keep 20 per cent provision against such loans for the next three months.
A loan will be doubtful one if a client fails to pay instalments for six to nine months and banks have to keep 50 per cent provision against such loans.
If any client fails to pay instalments for nine or more months, the loan is classified as a bad loan. Banks have to keep 100 per cent provision against bad loans.
In 2018, bad loans in the state-owned commercial banks — Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank, Bangladesh Development Bank and BASIC Bank — increased by 29.81 per cent or Tk 11,369.87 to Tk 48,695.87 crore from Tk 37,326 crore at the end of December 2017.
Bad loans in the state-owned commercial banks constitute 51.85 per cent of the country’s total amount of such loans.
In the private commercial banks, classified loans increased by 29.74 per cent or Tk 8,743 crore to Tk 38,139.85 crore (40.61 per cent of the country’s total defaulted loans) from Tk 37,326 crore.
Defaulted loans in the foreign commercial banks rose by 6.22 per cent or Tk 134.03 crore to Tk 2,288.03 crore from Tk 2,154 crore.
Specialised banks, however, managed to reduce defaulted loans by 11.76 per cent or Tk 638.36 crore to Tk 4,787.64 crore from Tk 5,426 crore.
The banking sector got mired in growing bad loan following detection of series of loan scams and embezzlements, including Hallmark Group scam in Sonali Bank, shady loan of BASIC Bank, AnonTex and Bimsmillah Group’s loan scams in Janata Bank and fund embezzlement in Famers Bank Limited and NRB Commercial Bank.
Sonali failed to recover a single penny of Tk 3,500 crore gulped by Hallmark Group in 2013. BASIC Bank is facing severe capital shortfall due to shady loans of Tk 6,000 crore, given during the tenure of its previous board of directors led by its chairman Sheikh Abdul Hye Bacchu, allegedly appointed on political consideration. Janata Bank is facing loan scam of over Tk 5,000 crore given to AnonTex Group.

News Courtesy: www.newagebd.net