Defaulted loans: Another ‘success,’ 5 times increase in just 12 yrs

After a lot of efforts a different kind of milestone was achieved in 2019. However, the banking sector of the country lagged behind in that milestone the next year after the outbreak of Covid-19 pandemic. As soon as the pandemic situation started improving, the banking sector regained its own glory. The sector achieved that sort of milestone again.

The amount of defaulted loans in the country’s banking sector has crossed Tk 1000 billion now. In case you do not have a calculator nearby to assess the amount, at least four Padma bridges could have been constructed with this money.

When the Awami League formed the government in 2009, the total amount of defaulted loans in the country was Tk 224.81billion. The amount is now Tk 1001.68 billion. There was a time when the deposited money would have doubled within just six years.

However, that thriving situation of the depositors no longer exists. They have been replaced by the loan defaulters. As a result, the amount of defaulted loans has increased almost five times. Again, if we take the loans written off into account, it would reach nearly Tk 1,500 billion. As of now, the total amount of loans written off is around Tk 450 billion. This can be termed classified defaulted loans as well.

However, the actual amount of these classified default loans is even more. The International Monetary Fund (IMF) published a special report regarding this in October, 2019, where it said, “The tendency to default loans is deep rooted among a specific quarter of people in Bangladesh. Some businessmen, who are also influential or have connections with high-ups, simply do not bother to repay the loan/do not feel any urge to repay the loan at all. These influential and powerful loan defaulters are even taking different important decisions of the financial sector nowadays.”

Analysing the financial sector of Bangladesh, IMF further said, “The default loans have been kept hidden here. Besides, the monitoring system of the central bank is weak. The bank directors and managers act recklessly. They even are not for breaching the law. Overall, the banking sector of Bangladesh is now in a very fragile state and facing a serious threat.

Regarding the secret defaulted loans, the IMF said, “The actual figure of defaulted loans is much higher than what is shown. If we consider the official figures, the amount would not seem so huge. But the reality is much graver. According to the figures of Bangladesh Bank, for example, the debt rate at the end of 2018 was only 10.3 per cent. However, the IMF thinks several other factors should be included. For instance, 4.1 per cent of the total loan is not included in the defaulted loan due to the stay order by the court, which must be included. Besides, some 5.6 per cent of the total loan has been kept in the name of a special mention account. Apart from that, Bangladesh Bank has issued no objection certificates (NOC) to several loan defaulters following appeals from several banks. The amount of such kinds of debts comprises of 5.6 per cent of the total loan. Therefore, to understand the real scenario, these three types of defaulted loans must be included.”

As such, the total amount of defaulted loans in the banking sector will cross Tk 3,000 billion because according to the statistics up to 2018, as many as 675 loan defaulters had taken stay orders, therefore, their names are not included in the list of the loan defaulters of Credit Information Bureau of Bangladesh Bank. The amount of such loans stands at Tk 792.42 billion now. Again, at different times the defaulted loans are rescheduled under special arrangement on government orders. In 2015, for example, a large sum of defaulted loans was rescheduled. According to Bangladesh Bank, the amount of such loans under the special mention account is Tk 27.192 billion. Besides, several banks had regularised defaulted loans of Tk 21.308 billion by taking NOC from Bangladesh Bank. As per this statistics, the amount of defaulted loan was Tk 240.167 billion at the time.

This system was still in effect afterwards. For instance, throughout the 2020, the businessmen had been given special privileges in returning the loans. No one was a defaulter at that time. The central bank is still a bit relaxed regarding the repayment of loans. On the other hand, the bankers say the actual amount of default loans is three times of what is documented. Many business groups are not being defaulted despite not repaying the loans for years. Apart from that, the same loans are being regularised by rescheduling repeatedly. As a result, the amount of documented default loans turns out low.

According to the government estimation, the total default loans crossed Tk 1000 billion for the first time in 2019. In March that year, for example, the total amount of default loans was Tk 1108 billion and Tk 1162 billion in September. This amount decreased in 2020 after the omission of instalments in returning the loan and in December, 2020, it was Tk 887.34 billion. Later, it started increasing again and crossed Tk 1,000 billion by the end of last September.

*This report appeared in the online edition of Prothom Alo and has been rewritten in English by Ashish Basu