Cheers on the success of default loan "fattening" programme

·       In 2009 default loans were Tk 22,481 crore

·       In 2024 default loans were Tk 1 lakh 82 thousand 295 crore

·       VAT collection target in budget equal to default loans

Loan defaultRepresentational image

The Value Added Tax or VAT collection target in the 2024-25 financial year budget has been fixed at Tk 1827.83 billion (Tk 1 lakh 82 thousand 783 crore). On the day that the budget was presented, it was learnt from sources in Bangladesh Bank that non-performing or default loans in the banking sector presently stand at Tk 1822.95 billion (Tk 1 lakh 82 thousand 295 crore).

That is not the volume of non-performing loans in entirety. The concealed default loans exceed this by far. If exempted loans, loans under court order, funds in special accounts are taken into account, then default will stand between Tk 4500 billion to  Tk 5000 billion (Tk 4.5 lakh  crore to Tk 5 lakh crore.) In the new budget, the total revenue income target has been fixed at Tk 4800 billion (Tk 4 lakh 80 thousand crore.)

It is evident, therefore, that the amount of money misappropriated by the loans defaulters who are living in comfort and luxury, is equal to the tax burden weighing down on the people's shoulders as they struggle to survive throughout the year. A common man has to pay 15 per cent VAT, and these loan defaulters can pay 15 per cent tax to whiten their black money if they so desire. And if they do not want to legitimise their ill-gotten gains, that is fine too. Bangladesh Bank is there, ready to serve the loan defaults with new and improved facilities at every step. Possibly there a default loan "fattening" programme at the central bank. And this programme is undoubtedly a great success. After all, in just three months alone, default loans have scaled up by Tk 366.62 billion (Tk 36,662 crore.) First, cheers to Bangladesh Bank. It is no mean feat to up default loans from 9 per cent to 11 per cent within just three months.

When Awami League came to power in 2009, default loans on the banking sector amounted to Tk 224.81 billion (Tk 22 thousand 481 crore). That default loan total now needs just Tk 177.05 billion (Tk 17,705 crore) to reach the Tk 2000 billion (Tk 2 lakh crore) milestone. Given the speed at which Bangladesh Bank is implementing the project, it does not seem that this will take much time. Awami League's election manifesto, incidentally, states that implementation of the law to recover default loans will continue. But in reality, defaults loans are being increased rather than recovered.

One of the conditions attached to the USD 4.7 billion (USD 470 crore) loan from the International Monetary Fund (IMF) is to decrease default loans down to 10 per cent by the year 2024. However, quite the opposite has happened. Non-performing loans have increased. While all quarters are concerned at this state of affairs, the finance minister Abul Hassan Mahmud Ali made no mention of this in the budget that he presented on Thursday. Quite to the contrary, in the mid-term macro policy statement, it was apprehended that it would require time to get results from the process to lessen default loans.

Loan default
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At the post-budget press briefing held yesterday, Friday, when a question was posed on the unabated increase in default loans, the prime minister's economic affairs advisor Mashiur Rahman replied. He simply said that efforts were being made in this regard. He said, "Default loans have not sprouted up overnight. These have accumulated over a long period of time for various reasons." This long period of time is actually the last 15 years. Non-performing loans increased in leaps and bounds over this time, aided and abetted by the government.

Continuous concessions

Over these 15 years, the loan defaulters and influential businessmen have been given one concession after the other. After 2009, at first the definition of defaulted loans was relaxed and three months added to the deadline. In 2015 special facilities were provided to loan defaults in the name of loan rescheduling. Special concessions were made in loan exemption too. In 2019 special facilities were provided to regularise loans by paying a 2 per cent installment.

Then with the Covid outbreak, the central bank made provision for all borrowers so that they needn't repay their loans then. At that time, certain good borrowers also became reluctant to repay. The present governor Abdur Rauf Talukdar was appointed to this office in July 2022. Upon assuming office, he provided the loan defaulters with a general reprieve and enforced new regulations. The new regulations allowed default loans to be regularised with a payment of 2.5 to 6 per cent deposit. Before, it required a deposit of 10 to 30 per cent to regularise default loans. Also, provision was made for default loans to be repaid over a period of five to eight years. Previously such loans would have to be paid within a maximum period of two years.

All these concessions and facilities prompted the now deceased banker Khondkar Ibrahim Khaled to dub this government as a "default-friendly" government

Under the new regulations, the central bank gave the boards of the concerned banks the authority to provide facilities for the default loans and also reschedule these loans. As a result, the bank owners themselves will receive loan rescheduling perks. Previously, the central bank's approval was required to reschedule loans. Now, there is even more scope to conceal default loans.

The concessions do not end here. In February this year the loan exemption rule was relaxed. Then the Bank Company Act was also amended and further concessions given last April. The central bank issued a new circular announcing that if one company of a group of companies is in default, other companies of the same business group are entitled to loans. This opened doors for defaulting companies to get new loans. All these concessions and facilities prompted the now deceased banker Khondkar Ibrahim Khaled to dub this government as a "default-friendly" government.

When the present governor took over and immediately provided such leeway to the loan defaulters, these influential persons go the message. Everyone realised that there would be no stern action against loan default, but all sorts of concessions instead. As a result, the default loans took a huge leap upwards.

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What IMF said

In 2019 IMF drew up a lengthy evaluation report on Bangladesh's financial sector. The report said there is a deep-rooted tendency among a particular class of people in Bangladesh not to return loans. A section of influential, wealthy persons and businessmen with good links at a higher level, do not feel any compulsion to return loans. The report said that these influential and powerful borrowers even take important decisions in Bangladesh's financial sector. Non-performing loans are concealed, the central bank's monitoring is weak, the bank directors and managers are reckless. They are not punished even if they violate the rules.

Every day there is stark evidence that things did not change over the following four years. Default has increased. In February this year a roadmap was announced to assuage the problems in the banking sector, including reducing non-performing loans. The roadmap contained much of the advice given down the years regarding reforms in the banking sector. But that roadmap never saw the light of day. Bangladesh Bank remains silent. In other words, there is no way out from the secret nexus between the policymakers and the influentials. There really is no reason to have any hope for a resolution to the default loans.

* This analysis appeared in the print and online edition of Prothom Alo and has been rewritten for the English edition by Ayesha Kabir

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