Loan defaulters get all the benefits

Upon forming the government following the ousting of the Ershad regime, finance minister M Saifur Rahman declared the names of loan defaulters in the Jatiya Sangsad (National Parliament) in 1990. When Awami League formed the government in 1996, finance minister Shah AMS Kibria drew flak from the influential loan defaulters when he published the names. Taking various opportunities the government provided, those influential people remain out of the list of loan defaulters. They even have been preparing policies on how to waive default loans.

Currently the amount of default loan in the country is Tk 1343.96 billion, which was Tk 1252.57 billion at the end of June this year. That means in the third quarter of this year (July-September), the default loan increased by Tk 91.39 billion. According to a Bangladesh Bank report, the amount of default loan increased by Tk 330 billion in the first nine months of this year (January-September). The total amount of loan at the end of September this year was just over Tk 14.36 trillion, according to the central bank report. This means the amount of default loan in percentage was 9.36 per cent.

Among the competing countries, the rate of default is highest in Bangladesh, said the World Bank. Only India is close. But the rate is much lower in all other countries. This default loan is the biggest problem in the banking sector.

The bank reform committee headed by economist Wahiduddin Mahmud gave its final report in 1999. The committee in the report said, “The state owned banks have been used as a tool to distribute political benefits, which is also a significant reason for default loan. Opposition from the vested groups and influential people is probably the biggest hindrance to reforming the banking sector. That is why strict political commitment is essential to reform the banking sector successfully.”

Basically, the amount of default loan has been soaring in the country as this strong political pledge was never seen.

Analysing Bangladesh’s banking sector, International Monetary Friend (IMF) in 2019 said there is a strong propensity of a certain section of people not to repay loans. At the same time, some businesspersons, who are influential and have connections with high-ups, do not feel the need to repay the loan. Those influential and powerful borrowers are now taking important decisions about Bangladesh’s banking sector.

IMF further said the default loan in Bangladesh has been kept concealed. The actual amount of default loan is much more than revealed. In total, the amount of default loan in Bangladesh is likely to be around Tk 2500 billion.

IMF said those three years ago. Bankers and economists think the current amount of default loan would be more than Tk 4000 billion, if added up.

The World Bank published a detailed report, ‘Change of Fabric’, on the economy of Bangladesh in October. There the global lender said weak corporate governance, weakness in implementation of laws and lack of transparency have put Bangladesh’s banking sector in grave risk. As a result, the opportunity of misuse of the banking sector also has increased. Several economic scams and high amount of default loan are its evidences.

Definition of default loan is one of the most changed definitions in Bangladesh. The country first defined default loan in 1989 but the first complete definition was drawn up in 1994. Since then all the governments changed the definition to suit their needs. In most of the cases the time for declaring someone defaulter has been increased. At the same time, the time of rescheduling the default loan was also changed several times.

When AL formed government in 2009, it took initiative to follow the international standard. For example, a Bangladesh Bank circular in 2012 said no default loan could be rescheduled more than thrice. But the Bangladesh Bank backtracked from the principle due to the lobby and pressure of the influential people. Changing the definition of default loan the time was extended until three months.

The strongest political patronisation to influential defaulters took place in 2015. That time a special scheme was taken to reschedule the defaulted loans. The policy had been that defaulted loans cannot be rescheduled for more than three times. But most of the influential businesspeople defaulted even after rescheduling their loans three times. Then a new opportunity was given to them in the name of restructuring the loans. Under that scheme a loan of Tk 150 billion of 11 large business conglomerates was restructured. Even after this, most of the conglomerates did not pay the instalments.

Definition of default loan was changed once again in 2018. Loan payment period was extended for three more months. Rules on loan write-off were relaxed at the same time. However, finance minister AHM Mustafa Kamal announced the biggest and best news for loan defaulters in the history of Bangladesh in 2019, granting the opportunity to regularise the default loan by paying 2 per cent of the instalments. Loan payment period was set at 10 years, with the first year being the grace period. Most of the loans taken during this period have turned into bad loans later.

This time the banking sector faces another new risk over default loans. The state has patronised the rise in default loans this long and now it has become difficult to tackle the situation. The impact of the economic crisis has started falling the on banking sector. Many good businesspersons along with the scrupulous businesspersons are failing to repay their loans now and that is likely to increase the amount of default loan in the coming days.

An economic crisis is on globally. It is taking toll on Bangladesh too. Appreciation of the dollar has increased production costs. The actual income of the people has dropped because of rising inflation. As a result, sale of products has dropped, decreasing the cash flow in business. A big gap prevails between income and expenditure. Overall, businesses are struggling to pay their loan instalments.

Bangladesh Bank had relaxed rules on loan payment significantly amid the coronavirus pandemic, but the central bank withdrew these facilities this year. Many businesses were in the good books despite not paying loan over the past two years, and now they are not paying their loans. Instalments of the rescheduled loans that were defaulted previously are also not being paid too. Given the circumstance, the situation has become even more complex.

Though Bangladesh has witnessed high growth for over a decade, the banking sector has always been seen as the villain. Big financial scandals have emerged in the financial sector due to severe weakness in good governance. People has suffered from it, deposits was devoured. Only loan defaulters benefit. Sometimes loan defaulters are called bank robbers, but state patronisation has not stopped. And loan default continues to rise.

This report appeared in the print and online edition of Prothom Alo and has been rewritten in English by Shameem Reza and Hasanul Banna