Banking sector: Default loans surpass 1.5 trillion 

Defaulted loans between April and June surged by Tk 244.19 billion, resulting in the total default of Tk 1.56 trillion (156,039 crores) by the end of June.

These defaulted loans represent 10.11 per cent of the disbursed loans in the banking sector.

Just three months earlier, defaulted loans were at Tk 1.31 trillion (131,620 crore) at the close of March. 

When Awami League came to power in 2009, defaulted loans stood at Tk 224.81 billion. This has now skyrocketed to over Tk 1.5 trillion. In essence, defaulted loans have surged nearly sevenfold over a span of 14 years. This timeframe evidently proved advantageous for defaulters.

Meanwhile, Bangladesh Bank's efforts to reduce defaulted loans have proven unsuccessful despite numerous concessions.

The central bank spokesperson Mezbaul Haque informed Prothom Alo that defaulted loans have indeed increased. One contributing factor is the rise in defaulted loans across 31 banks, which is now reflected in the overall defaulted loan figures.

Some banks faced challenges in rescheduling loans, while others defaulted again after the initial rescheduling, he added.  

For instance, Mezbaul said a bank had rescheduled a loan amounting to Tk 7 billion, only to default again due to the inability to meet installment payments. This highlights that certain sizable loans defaulted even after the rescheduling process. It's crucial to analyse additional factors that have played a role in this regard. 

Due to the Covid-19 pandemic, customers were not defaulters throughout 2020 and 2021, even without making any installment payments.

However, after the relaxation was lifted in 2022, there has been a noticeable trend of increasing defaulted loans in the banking sector since the beginning of this year. Given this situation and the fear of further increase in defaulted loans, Bangladesh Bank offered a discount on bank loan payments in June.  

During that time, the central bank's notification stated that a client would not be classified as a defaulter if they deposited half of the loan installments by the following month of June. 

Following Bangladesh Bank's decision, individuals at risk of defaulting on loans were given the opportunity to maintain their status as regular borrowers by depositing half of the required amount. This leniency was applicable specifically for term loans, which constitute nearly half of Tk 15 trillion loans in the banking sector.

However, despite these provisions, the issue of default loans persists and continues to rise. Bankers express concern that even reliable customers are losing motivation to repay loans due to the recurring implementation of discounts. This has resulted in a liquidity crisis in the banks, impacting their ability to disburse new loans. 

Meanwhile. the Bank Company Act underwent amendments in the Jatiya Sangsad this year. Consequently, defaulters now have the chance to secure loans.

Experts predict this new law might exacerbate the situation of defaulted loans in the days to come. 

Previously, if a company within a business group defaulted, other affiliated companies were barred from obtaining loans.

The current government has been granting substantial concessions to borrowers since 2015. Consequently, defaulters routinely reschedule loans, enabling them to secure new loans only to default once more. In August of last year, Bangladesh Bank published its financial stability report, revealing that the number of rescheduled loans surpasses the default loans in the country's banking sector.

According to the Bangladesh Bank's report, the status of rescheduled loans in the country by the end of 2022 was Tk 2.12 trillion (212,780 crores), constituting 14.40 per cent of the total loans within the banking sector. Therefore, Bangladesh Bank's reported 10.11 per cent of defaulted loans appears to be an underestimation, considering the substantial amount of rescheduled loans.

Additionally, approximately one trillion taka is being withheld due to lawsuits. Consequently, the actual defaulted loans amount to more than Tk 4 trillion, accounting for around 30 per cent of the total loans. Notably, the International Monetary Fund (IMF) recommends including rescheduled loans and court-suspended loans in the count of defaulted loans. 

The IMF has set conditions to reduce default loans to 10 per cent for loan approval for Bangladesh. Presently, it seems that this condition is not being met.

Discounts resulted in more defaults  

After the 2014 elections, the Awami League government in the country began offering substantial concessions to borrowers. Upon returning to power, the government initiated a special loan rescheduling scheme for influential defaulters in 2015. Initially, loans could not be rescheduled more than three times, but many influential entrepreneurs defaulted on the opportunity thrice.

Consequently, a new provision called debt restructuring was introduced. This scheme involved restructuring loans amounting to approximately Tk 150 billion for the top 11 industrial groups in the country. Unfortunately, most of these groups defaulted on loan installments.  

Further concessions were granted after the 2018 elections. As the finance minister, AHM Mustafa Kamal provided the most significant relief to defaulters in the country's history in 2019. During that time, defaulters were allowed to regularize their defaulted loans with 2 per cent installments. The new rules also allowed a 10-year repayment period, with no installments required for the first year. However, many of those who availed this opportunity later defaulted.  

In January 2019, during an event, the finance minister mentioned that defaulted loans would not increase by even one taka. However, at that time, the defaulted loans in the country amounted to Tk 939.11 billion. This default has since increased to over Tk 1.5 trillion.

Not only has the amount increased, but the percentage of defaulted loans has also risen. Additionally, considering the amount stuck in rescheduling and legal cases as per the IMF's methodology, the defaulted loan amount and percentage have increased significantly. 

Economist and former professor in the Economics Department of Chittagong University, Muinul Islam, informed Prothom Alo that Bangladesh Bank's account of defaulted loans does not provide the real picture. He highlighted that the actual defaulted loans are considerably higher than reported. Numerous loans cannot be officially marked as defaulted due to ongoing legal issues.

Additionally, foreclosed loans are not categorized as defaulted loans. If these two types of loans are taken into consideration, the actual amount of defaulted loans would surpass Tk 4.5 trillion. He emphasised that unless there is a separate legal process through tribunals established for defaulters, the number of defaulted loans will not decrease. 

Muinul Islam also mentioned, "In 1998 and 1999, two former chief justices, Shahabuddin Ahmad and Muhammad Habibur Rahman, discussed the formation of tribunals for borrowers. However, no government has taken this initiative. To rein in the uncontrolled surge of defaulted loans, defaulters need to be held accountable, and their assets should be seized. Only then can we expect some improvement in this situation. Until this action is taken, the situation is unlikely to improve."