Government banks grapple with persistent defaulted loans

Despite implementing various targets, the financial condition of government banks is not improving. These banks are struggling with loans to big customers.

Moreover, the defaulted loans due to irregularities and corruption are regularised, only to be defaulted again within a few days. Consequently, various indicators of government banks remain stuck in the same loop. 

One of the conditions set by the International Monetary Fund (IMF) to grant a USD 4.7 billion loan was to reduce defaulted loans. The organisation has mandated bringing down the non-performing loans of the banking sector to 10 percent by 2024. However, the total non-performing loans of the banking sector rose to 10.11 per cent in June of the previous year, up from 8.80 per cent in March.

As of June, the average non-performing loan for private sector banks is less than 10 per cent. Conversely, for government banks, it stands at 25 per cent, up from 19.87 per cent in March. This information has been obtained from the Bangladesh Bank's report on banks’ defaulted loans. 

Target not met  

Bangladesh Bank has directed four state-owned banks to reduce their non-performing loans to 12 per cent by June next year, in compliance with IMF conditions. The four banks in question are Sonali Bank, Agrani Bank, Janata Bank, and Rupali Bank.

However, no specific instructions have been provided to reduce defaulted loans. Consequently, the non-performing loans of most government banks have shot up instead of dropping.  

In March, 14.65 per cent of Sonali Bank's loans were in default, a figure that rose to 14.93 per cent in June. Agrani Bank witnessed an increase in defaulted loans from 21.89 per cent to 23.51 per cent. Janata Bank saw a significant surge in defaulted loans, rising from 17.65 per cent to 32.64 per cent.

Similarly, Rupali Bank experienced an increase in defaulted loans from 18.41 per cent to 19.06 per cent. The capital of these four state-owned banks has also been depleted, resulting in a significant capital deficit. 

Furthermore, defaulted loans at Basic Bank increased from 58.37 percent to 62.66 percent. On the other hand, non-performing loans at Bangladesh Development Bank decreased from 49.34 percent to 44.05 percent.  

Despite special supervision by Bangladesh Bank in these banks and oversight by supervisors and regulators, it has not yielded any significant results.  

Mohammad Jahangir, the Managing Director of Rupali Bank, informed Prothom Alo that new plans have been devised to reduce bad debts, and it is anticipated that they will decrease soon. 

Major defaulters  

Among the government banks, Janata Bank has experienced the most severe situation in recent times. Their defaulted loans surged from Tk 169.5 billion in three months to Tk 286.65 billion by June. The bank is grappling with issues concerning two business groups – Anon Tex and Crescent Group. 

The top defaulters of the bank include Crescent Group, led by MA Kader, and film producer Abdul Aziz. Following that, the leading entity in default loans is Ratanpur Group, with its owner Maksudur Rahman hailing from Noakhali. He is a former director of South Bengal Agriculture and Commerce Bank.

Subsequently, there's the owner of Chowdhury Knitwear and Chowdhury Towel, part of the Bismillah Group. The owner of the group, Khawaja Soleman Anwar Chowdhury, has fled abroad. Other defaulters include Habib Hotel (Holiday Inn), Gram-Bangla NPK Fertilizer, Anon Tex Group's MH Golden Jute, and Shiny’s Knit. 

The Managing Director of Janata Bank, Abdul Jabbar, shared with Prothom Alo, "Some of the rescheduled loans have defaulted again. Additionally, the amount of defaulted loans has increased as the loans of some major customers have matured. Although these loans have already been regularised, new defaulted loans will be reduced as a result." 

Similarly, Agrani Bank is entangled with loans to a few prominent and influential customers. The defaulted loans of Agrani Bank escalated from Tk 149.43 billion to Tk 164.95 billion in three months. The key defaulters of the bank include Zakia Group, Tanaka Group, Sikder Group, Sonali Group, and Moon Group, with approximately Tk 50 billion stuck with them. 

Meanwhile, defaults at Rupali Bank increased from Tk 75.85 billion to Tk 80.38 billion in three months. Notably, Chattogram's Noorjahan Group, Benetex Industries, AA Knit Spin Limited, Vargo Media (Channel 9), and HR Spinning Mill are at the top of the list of defaulting customers.

Other defaulting customers include Ibrahim Consortium, SA Group, M Rahman Steel, Jazz Spinning, Panna Textile, HZ Agro, Himalaya Paper and Board, Western Engineering, and Chowdhury Leather. 

On the other hand, Sonali Bank's defaulted loans have seen a slight increase from Tk 120.06 billion to Tk 123.81 billion. Despite major irregularities in Sonali Bank's past, no new incidents have been reported. The bank is presently avoiding extensive dealings with large business groups and is striving to bolster its income through engagements with small traders and treasury business. Notably, among the top defaulters of the bank is the much-talked-about Hallmark Group. 

Defaulted loans growing relentlessly

Bangladesh Bank has been unable to effectively reduce the defaulted loans of the banking sector despite offering various concessions. From April to June, defaulted loans in the country's banking sector increased by Tk 244.19 billion.

Consequently, the total defaulted loans reached Tk 1.56 trillion by the end of June. These defaulted loans represent 10.11 percent of the total loans disbursed by the banking sector. At the end of March, defaulted loans stood at Tk 1.31 trillion. 

In 2009, when the Awami League formed the government, the total defaulted loans in the country were Tk 224.81 billion. Now, this figure has surged past Tk 1.5 trillion. In other words, defaulted loans have increased almost sevenfold in 14 years. 

Mustafa K. Mujeri, former Director General of Bangladesh Institute of Development Studies (BIDS) and former Chief Economist of Bangladesh Bank, shared with Prothom Alo that most of the directors in government banks are government officials and should be held accountable. Additionally, he emphasised the need to have professional bankers run these banks and suggested that loans should not be granted based on political consideration. Only through these measures can these banks be restored to order. If the pervasive bad loans are not curbed, the chaos in the financial sector will escalate. 

*This report, originally published in Prothom Alo print edition, has been rewritten in English by Farjana Liakat