Defaulted loans soar to Tk 1.11 lakh crore

Defaulted loans in the scam-hit banking system skyrocketed to Tk 1,10,873.54 crore in the first quarter of 2019 because of a 31 per cent increase in non-performing loans in private commercial banks.

The figure of defaulted loans would reach Tk 1,63,758 crore if the figure of loans written off, Tk 52,884 crore, was added.

In the banking system, non-performing loans grew by 18.06 per cent or Tk 16,962.14 crore in the first quarter of the calendar year 2019 from Tk 93,911.4 crore at the end of December 2018.

Bangladesh Bank officials said that the government move to allow easy restructuring of defaulted loans hampered default loan recovery in the quarter as many borrowers refrained from paying instalments to take the facility of paying lower interest and long-term repayment scope.

Non-performing loans constituted 11.87 per cent of the total outstanding loans, Tk 9,33,727 crore, in the banking system while it was 10.30 per cent in 2018 and 9.31 per cent in 2017.

Former Bangladesh Bank governor Salehuddin Ahmed told New Age on Monday that the government’s sympathetic approach to the defaulted loans along with lack of stringent measures against the defaulters were the core reasons for the soaring non-performing loans.

He cautioned that such rise in defaulted loans would pul multidimensional adverse impact on the country’s entire economy.

Although the volume of non-performing loan witnessed a bit curb at the end of December 2018 due to the banks’ moves on the defaulted loan recovery using different tools like rescheduling, it soared again at the end of March 2019.

The defaulted loan dropped by 5.49 per cent on December 31, 2018 from Tk 99,370 crore at the end of September 2018.

In January-March 2019, the financial health of the banking sector further deteriorated even though finance minister AMH Mustafa Kamal immediately after assuming office in January mentioned that there would be no further increase in defaulted loans in the banks.

According to a Bangladesh Bank report released on Monday, defaulted loans in private commercial banks increased by Tk 11,810.09 crore January-March quarter, taking their total defaulted loans to Tk 49,949.94 crore from Tk 38,139.85 crore in December 2018.

Defaulted loans in state-owned commercial banks increased by Tk 5,183.58 crore to Tk 53,879.45 in March 2019 from Tk 48,695.87 crore three months ago.

Defaulted loans in the foreign commercial banks, however, fell by 1.38 per cent or Tk 31.52 crore to Tk 2,256.51 crore from Tk 2,288.03 crore during the same period.

The volume of non-performing loans in the specialised banks remained unchanged at Tk 4,787.64 crore.

The non-performing loans in state-owned commercial banks constitute 48.6 per cent of the total defaulted loans while the figure was 51.85 per cent in December 2018.

The contribution of the non-performing loans in the private commercial banks to the total defaulted loans increased to to 45.05 per cent in March 2019 from 40.61 per cent in December 2018.

Non-performing loans in specialised banks and foreign commercial banks constitute 4.32 per cent and 2.04 per cent of the total defaulted loans respectively.

Instead of taking tough measures against the loan defaulters to recover the money, the government immediacy after its formation for the third consecutive term in January 2019 announced an eased loan rescheduling system.

Under the package, defaulters were allowed to reschedule loans for 10 year inclusive of one-year grace period with just 2 per cent down payment, following which overall loan recovery slowed down.

The package, officially declared on May 16, however, was stayed till June 26 by the High Court.

Salehuddin said that the government move was wrong and it gave a signal to the defaulters that the government is flexible for them.

As a result, the defaulters, who had intention to repay, might have refrained from repaying loans, he said, adding that the new borrowers might have also opted to follow the same strategy.

The former central bank governor also said that improper measures on irregularities and wrongdoings also fuelled loan non-payment.

Achieving budgetary targets including job creation cannot be achieved if banking sector fails to perform well and if the government refrains from taking actions against the wrongdoers, he said.

The banking sector has been going through a series of scams and irregularities over past several years, with the latest scam involving Tk 3,572.98 crore in Janata Bank by five subsidiaries of the Crescent Group and another of Tk 5,508 crore by AnonTex in the same bank in the outgoing financial year 2018-19.

In 2012, Bismillah Group swindled about Tk 1,100 crore from Janata Bank and the Hallmark Group swindled about Tk 3,500 crore from Sonali Bank in 2013.

In 2016, a central bank investigation found that Farmers Bank (now Padma Bank) sanctioned and disbursed loans and hid defaulted loans amounting to about Tk 400 crore in violation of banking rules.

As per the central bank regulations, banks have to keep 20-100 per cent provision against classified loans

News Courtesy: www.newagebd.net