Loan defaulters had gone hand in hand with the recently-ousted Awami League government over the past 15 years. The past government allowed influential people to secure bank loans, as well as formulated policies to show fewer bad loans in papers.
The rise in defaulted loans documented in papers depicts a grave scenario for the financial sector, as the banking sector saw an increase in defaulted loans by Tk 1.89 trillion during the successive tenures of Awami League government, and most of these bad loans are unrecoverable.
According to data from Bangladesh Bank, defaulted loans mounted to over Tk 2.11 trillion at the end of June this year, accounting for 12.56 per cent of total disbursed loans.
When the Awami League formed the government in 2009, defaulted loans stood at Tk 224.81 billion, but the figure rose too high during the three terms and seven months of the fourth term of the Awami League. The increased amount is equal to the spending for construction of at least six Padma Bridges or five metrorail projects.
Bankers, however, said the actual amount of defaulted loan is much higher because the central bank did not consider the loans that were written off, as well as suspended by court orders.
Bangladesh Bank started taking steps to reform the bank sector since the fall of the Awami League government on 5 August, with the board of directors being reappointed at nine private banks, which mostly were under the grip of Chattogram-based S Alam Group.
The regulator also issued various directives to overcome the situation. As a result, senior bankers think the actual scenario of the banks’ defaulted loans will be revealed in the coming days.
Speaking about the recovery of banks’ defaulted loans, the former president of the Bangladesh Economic Association and professor of economics at the University of Chittagong, Muinul Islam, told Prothom Alo that defaulted loans increased due to patronising loan defaulters.
He said the actual amount of defaulted loans exceeds Tk 5 trillion as loans that were written off, as well as suspended by court orders were not included in the Bangladesh Bank’s data.
Muinul stressed that action must be taken against the top 10 loan defaulters of all banks by forming a tribunal, and loans will have to be recovered by seizing their assets. “If the money is not recovered, loan defaulters will escape through legal loopholes.”
Muinul Islam further said, “S Alam Group alone borrowed Tk 2 trillion from the banking sector and most of the money has been laundered. Those loans did not come up in the lists of defaulted loans. Special initiatives will have to be taken immediately to recover the money through sale by acquiring their wealth and industry. Half of the money could be recovered this way.”
Rise in defaulted loans
When Awami League came to power in 2009, defaulted loans stood at Tk 224.81 billion in the banking sector. The figure rose to over Tk 2.11 trillion at the end of June this year, which was 12.56 per cent of total disbursed loans. Bad loans at six state banks stood at over Tk 1.02 trillion, which is about 33 per cent of their total loans.
Janata Bank topped among the state-owned banks with bad loans of about Tk 480 billion. The bank owed Tk 180 billion to BEXIMCO Group, Tk 80 billion to Annontex Group and Tk 20 billion to S Alam Group.
Former prime minister Sheikh Hasina's adviser to private industry and investment, Salman F Rahman, was the vice president of BEXIMCO Group while Saiful Islam is the chairman of S Alam Group.
Janata Bank managing director Abdul Jabbar told Prothom Alo, “We are hiding nothing. This is why defaulted loans soared. We are also in touch with the defaulted companies and these clients are trying to reschedule the loans through repayments.”
Data from Bangladesh Bank showed defaulted loans at the private banks stood at Tk 999.21 billion, which was 8 per cent of their total loan outstanding, with National Bank, AB Bank and Islami Bank topping the list.
Defaulted loans at foreign banks stood at Tk 657.54 billion, while it was Tk 57.56 billion at specialised banks, it added.
As of December last year, defaulted loans at banks stood at about Tk 1.46 trillion. According to Bangladesh Bank, however, the amount rose by Tk 657.54 billion in the last six months, with January-March alone seeing a rise of Tk 366.62 billion in bad loans.
Like the state-owned banks, private banks also saw a rise in bad loans. Even monitoring of the central bank, and appointing former and incumbent bureaucrats in banks’ boards of directors and central bank’s observers could not curb the trend of rise in defaulted loans in many private banks.
The International Monetary Fund (IMF)’s $4.7 billion loan came with several conditions that included bringing down the defaulted loan to 10 per cent by 2024 per cent, but what happened was quite the opposite.
Economists and analysts have long been expressing concerns over the growing tendency of defaulted loans. Yet, the immediate past finance minister Abul Hassan Mahmood Al said nothing about the matter during his budget speech in June this year.
Facilities granted in 15 years so far
Loan defaulters and influential businesspersons had been spared one by one at the patronisation of the state over the past 15 years. On the one hand, laws have been relaxed to sanction more loans to some special clients, on the other hand, laws changed to provide loans to the defaulters.
The government eased the definition of defaulted loans in 2009. The debt restructuring facility was given at the request of Salman F Rahman in 2015. Loan write-off was also relaxed. A special loan rescheduling facility was given with the payment of 2 per cent of the loan in 2019.
After that, the Covid-19 pandemic broke out and the central bank issued no loan repayment facility, thus, several good clients also became reluctant to pay the debt.
After joining the office, former governor Abdur Rouf Talukder issued new guidelines allowing the defaulters to regularise their loans by paying 6 per cent of the money.
Previously, regularisation of loans required 10-30 per cent of the amount. Besides, the loan payment period was also extended to 5-8 years from 2 years.
The new guidelines handed the bank power to provide credit facilities against defaulted loans and the bank’s board of directors concerned with the power to reschedule the loans.
That is how bank owners decided which loans would enjoy the rescheduling facility, which previously required the approval of the central bank. As a result, there have been more opportunities to conceal the loans despite being defaulted. Yet, the scenario of the rise in defaulted loans is severe and shocking, bankers remarked.
Speaking about the overall situation, private Mutual Trust Bank managing director Syed Mahbubur Rahman told Prothom Alo that the actual condition of clients with defaulted loans will have to be revealed now by conducting neutral audits and how deep the problem of defaulted loans could also be learned.
He further said the real value of collateral deposits against these loans will also have to be revealed now, followed by tweaking necessary measures, and then loans can be recovered.
Defaulted loans will not be recovered by randomly providing facilities, he added.
* This report appeared in the print and online editions of Prothom Alo and has been rewritten in English by Hasanul Banna