Default loans in Bangladesh Banking sector soar 26 per cent | Daily Star
12:00 AM, February 27, 2019 / LAST MODIFIED: 12:40 PM, February 27, 2019

Default loans soar 26pc

Default loans at banks went up by a hefty 26.38 percent or Tk 19,608 crore last year, the highest rise in seven years, exposing the precarious condition of the banking sector. 

Poor lending practices, a lack of corporate governance and the government's interference in banks were the main reasons behind the rise in toxic loans in recent times, analysts said.

The amount of non-performing loan (NPL) stood at Tk 93,911 crore at the end of 2018, up from Tk 74,303 crore a year ago, according to data from the central bank.

The NPLs now accounted for 10.30 percent of the banking sector's total loans, up from 9.31 percent in 2017.

“This is not a sudden development at all. The dire state of affairs in the banking sector has emerged from the irregularities and loan scams occurring in the last seven to eight years,” said Khondker Ibrahim Khaled, a former deputy governor of the central bank.

He said a large amount of loans had turned bad long ago, but many lenders concealed it by rescheduling the debts over and over.

At one stage, even the rescheduling facility offered by the central bank got exhausted, pushing NPLs higher last year, he said. 

Bad loans can be rescheduled for a maximum of three times as per the central bank's instruction.

Khaled says both private and state-run banks have repeatedly offered loans to the unqualified borrowers. Some directors of private banks have also pursued boards to sanction the loans, playing a major role in the deterioration of the financial health of the lenders.

Among the banks, the state-run lenders are facing the worst situation because of repeated government intervention, he said.

The government forms the boards and appoints managing directors to the state lenders, bringing troubles for them, he said.

Classified loans at the state-run lenders stood at 57 percent of the NPLs in the banking sector. The eight state-run banks' default loans totalled Tk 53,484 crore last year, up 25.10 percent year-on-year.

Khaled said the central bank should be given the power to dissolve and constitute the boards of the state lenders by way of amending the Bank Companies Act 1991, with a view to improving their financial health.

But there is no positive indication that the upward movement of the default loans will come to an end this year, he said.

Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh, a platform of the managing directors of commercial banks, said the classified loans had gone up last year but came down in the final quarter.

He, however, said it was a regular phenomenon as the defaulted loans go down in the last quarter of a year as banks put in a strong effort to recover loans to manage a healthy profit.

“But default loans go up again in the January to March quarter. So, we should lay emphasis on arresting the increasing trend of the classified loans,” he said. In the October-December quarter, the NPLs were down 5.49 percent compared to the preceding quarter when it was Tk 99,371 crore.

Rahman, however, said he was hopeful as the government has recently taken measures to rein in the uptrend of the default loans which would help keep the toxic loans at a tolerable level in the first quarter.

The default loans at private commercial banks rose 30 percent year-on-year to Tk 38,140 crore last year. Foreign banks also saw an increase of 6.19 percent to Tk 2,288 crore.

High levels of the NPLs could impede a pickup in investment if left unaddressed, said the Metropolitan Chamber of Commerce and Industry, Dhaka on Monday.

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