Soured loans soar to new highs
Banks' defaulted loans hit Tk 134,396 crore at the end of the third quarter of this year -- yet another high as a lack of governance continues to wring the sector.
"This is just a new figure of the old story, which is a sign of ignorance of due diligence while giving out loans," said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.
At the end of September, soured loans accounted for 9.36 percent of the total outstanding loans of Tk 1,436,200 crore, according to data from the Bangladesh Bank. A year earlier, the ratio was 8.12 percent.
The recent staff mission of the International Monetary Fund, however, was sceptical of the figure and has tagged bringing down the sector's bad loans to less than 10 percent as one of the conditions for the $4.5 billion loan.
Forming an asset management company to dispose of the soured loans from the banks' balance sheets is another condition agreed upon with the IMF mission.
"The problems in the banking sector are clearly identified. But the increase in default loans has given an indication that no effective measure has been taken yet to address the issues," Hussain said.
Third-quarter's bad loan figure marked a rise of 33 percent rise from a year earlier and 7.3 percent from the preceding three months.
Hussain dismissed the bankers' excuse of an unfavourable business environment for the spike in bad loans.
"There is forbearance for borrowers to repay loans," he said.
For instance, borrowers in large industries would be able to avoid falling into the defaulted loan category by repaying half of the loans payable for the April-June period in line with the central bank's instruction.
The borrowers must clear 60 percent of their unpaid loans in the July-September quarter and 80 percent in the fourth quarter of 2022 if they don't want to be classified as defaulters.
For cottage, micro, small and medium enterprises, borrowers must pay 25 percent of the payable loans in the April-June quarter, 30 percent in the second quarter and 40 percent in the last quarter of the year to avoid the defaulter status.
Borrowers have been enjoying relaxed repayment support since 2020 soon after the coronavirus hit the country.
In many cases, banks were compelled to disburse loans to influential borrowers, Hussain said.
"Some banks are not following the rules while giving out loans," said Salehuddin Ahmed, a former BB governor.
Besides, the central bank has frequently relaxed the rules and regulations for loan classification and rescheduling policies, sending the wrong signal to borrowers.
"Businesses have forgotten how to pay back loans on time because of this."
Besides, some delinquent borrowers usually take loans in the name of doing business, but they later divert their funds to other sectors.
"Political will is imperative to bring down defaulted loans. Or else, it will only balloon in the days ahead."
Against the backdrop, the common people's confidence in the banking sector may weaken, Ahmed added.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, pinned the increase in default loans on the economic slowdown.
Habitual defaulters have also not repaid their loans using the excuse of the ongoing stress on the economy, he said.
Rahman went on to advise banks to gear up their recovery process of default loans by strengthening the legal process.
In addition, monitoring of borrowers should be enhanced such that they repay loans as per their commitment, he added.
Many businesses imported products last year at a lower exchange rate of the dollar, said Mosleh Uddin Ahmed, managing director of Shahjalal Islami Bank.
They also managed a deferral facility from the central bank to settle their letters of credit (LCs) at their convenient time within a span of one year. They sold their products aligning the exchange rate that they quoted while opening the LCs, he said.
Meanwhile, the taka depreciated dramatically against the dollar, creating substantial exchange rate losses, he said.
The exchange rate of the taka stood at Tk 105.40 for each dollar yesterday in contrast to Tk 85.79 a year earlier.
Under such a situation, many businesses have become defaulters, he said.
On top of that, Bangladesh's export destinations are in recession, meaning that ordinary people have lost their purchasing power.
This means exporters may face the same consequence that importers have already faced, Ahmed added.
At the end of September, defaulted loans in the nine state banks stood at Tk 64,729 crore, up 36 percent year-on-year. Private banks' defaulted loans grew 31 per cent to Tk 66,695 crore while that of nine foreign banks 10.4 percent to Tk 2,971 crore.