Default loans jump by Tk 110 billion in 3 months

There was a moratorium on loan repayments for two years due to the outbreak of the coronavirus in 2020 and 2021. There was scope for relaxed loan repayments and access to low-interest loans last year as well. The waiver has been completely withdrawn from this year, but low-interest loans remain. This has affected the banks’ default loans. Default loans climbed to Tk 109.64 billion during the January-March term. The default loans increased by Tk 181.80 billion in one year from April 2022 to March 2023.

According to Bangladesh Bank's updated report on non-performing loans (NPL) at the end of March, the total loans stood at Tk 14 trillion in the banking sector. Default loans increased to Tk 1.31 trillion. In a nutshell, 8.8 per cent of bank loans are in default now. In December, defaulted loans were Tk 1.2 trillion or 8.16 per cent.

Meanwhile, the International Monetary Fund (IMF) speculates that the actual defaults are higher than what has been disclosed by Bangladesh Bank. According to them, default loans are more than Tk 3 trillion. The IMF also insisted on including rescheduled and restructured loans, doubtful loans and defaulted loans suspended by court order as default loans.

Bank officials say that the information provided by banks on default loans at the end of last December was unaudited. After Bangladesh Bank had carried out an inspection, the loans of some banks were declared defaulted.

In this, many loans of private sector banks have been declared default again. Bankers are concerned about the increase in default loans of the private sector. The default loans of private banks increased from 5.13 per cent to 5.96 per cent in a span of three months.

Anis A Khan, the former chairman of the Association of Bankers Bangladesh, told Prothom Alo, "I am not surprised to see this condition of the private banks. Some private banks are run by only one or two directors. There is no efficient governing body in these banks. Due to this, defaulted loans are increasing and will increase further. Hiding default loans will lead to a bigger crisis. To avoid this, the central bank has to tighten the supervision and audit system. Only the central bank can restore competent governing system in private banks.”

Default loans soaring in private banks

Government banks and bad loans used to go hand in hand in the past. This trend has shifted to private banks. Private banks that are run by families often see more irregularities. These loans are gradually turning into default. On the other hand, many private sector banks are suffering from liquidity crisis due to borrowers defaulting on loans. Such banks are carrying out daily operations by borrowing capital from other banks at high interest.

The National Bank suffered huge losses due to irregularities committed by the directors, anonymous loans and interest waivers on huge loans. Last year, the bank reported a loss of Tk 32.60 billion. It is learnt that National Bank is the top among private banks in defaulting loans which made the bank top in losses and defaulted loans. National Bank's defaulted loans increased from Tk 66.58 billion to Tk 77.73 billion from December to March.

Defaulted loans of Islami Bank has also been soaring after the change of its ownership. The condition did not improve much after appointing an observer to the bank. As a result, Islami Bank's non-performing loans (NPL) increased from Tk 54.02 billion to Tk 61.01 billion in a span of three months. First Security Islami Bank's defaulted loans also increased from Tk 16.39 billion to Tk 29.7 billion during the same period. Sharia-based Shahjalal Islami Bank's defaulted loans went up from Tk 9.06 billion to Tk 11.32billion at the time.

The ownership of United Commercial Bank (UCB) also changed in 2017. Defaulted loans of the bank were Tk 18.29 billion in December 2022, which rose to Tk 28.06 billion in March. UCB managing director Arif Quadri told Prothom Alo, "Many could not pay installments. Those loans were turned into defaulted loans as per the rules.”

Trust Bank's defaulted loans were Tk 13.03 billion last December, which climbed to Tk 22.60 billion in March. Trust Bank managing director (MD) Humaira Azam told Prothom Alo, "These loans were granted over a decade ago. These loans are sometimes rescheduled. After a few days it becomes defaulted again. Because of this, defaulted loans have increased. No newly disbursed loans have defaulted.”

During the period from December to March, Premier Bank's non-performing loans increased from Tk 5.82 billion to Tk 9.96 billion, IFIC Bank's from Tk 18.29 billion to Tk 22.95 billion, Bank Asia's from Tk 11.91 billion to Tk 15.65 billion and Jamuna Bank's defaulted loan increased from Tk 5.17 billion to Tk 9.62billion.

Premier Bank MD Reazul Karim told Prothom Alo, “We will take legal action against some high profile borrowers. For this we did not agree when they wanted to reschedule the existing loans. Bangladesh Bank had objections about these. The bank's defaulted loans have increased because of that.”

New banks also face challenge

NPLs are increasing in new banks as well. Among those, the defaulted loans of Simanto Bank increased from Tk 150 million to Tk 310 million, NRB Commercial Bank from Tk 4.35 billion to Tk 6.72 billion, NRB Bank from Tk 1.48 billion to Tk 3.06 billion and Modhumoti Bank increased from Tk 950 million to Tk 2.14 billion.

MD of Modhumoti Bank Shafiul Azam told Prothom Alo, “Bangladesh Bank's policy support was withdrawn. Businesses have been facing various pressure. Due to this, defaulted loans have soared. But we have been trying to regularise these loans by collecting cash.”

Government banks have 20pc defaulted loans

One of the conditions relayed by IMF for approving loan of USD 4.7 billion is to bring down the non-performing loans of public sector banks to 10 per cent. However, the NPL rate of these banks is 19.87 per cent. Bangladesh Bank has ordered four state-owned banks to bring down their NPLs to 12 per cent by June this year. The four banks are Sonali Bank Ltd, Agrani Bank Ltd, Janata Bank Ltd and Rupali Bank Ltd.

Agrani Bank had the highest defaulted loans in March. The defaulted loan of the bank is Tk 149.43 billion or 21.89 per cent. Then Janata Bank's defaulted loans are Tk 148.87 billion or 17.46 per cent. Sonali Bank's defaulted loan is Tk 126 billion or 14.65 per cent, Rupali Bank's Tk 75.85 billion or 18.41 per cent.

In response to why the non-performing loans increased, Bangladesh Bank assistant spokesperson Sarwar Hossain told Prothom Alo, “The data on NPLs in December was unaudited. This is the real bad loan. This has increased as many rescheduled loans became defaulted. Again, due to the withdrawal of the court's stay, many loans turned defaulted. The central bank continues to take various measures to reduce defaulted loans.”

How to bring down default loans?

Sri Lanka has the highest default rate among South Asian countries. The default loans of the country are about 11 per cent. Bangladesh is the next. Nepal has the lowest default rate, less than 2 per cent. According to the recently published World Bank Regional Economic Report on South Asian countries, bad loans are increasing in Bangladesh due to high import costs, defaulting on instalments by borrowers and weak oversight by regulatory agencies.

Last Monday, the Association of Bankers Bangladesh (ABB) leaders held a press conference and said that it is not possible for the banks and Bangladesh Bank alone to control defaulted loans. Then, in an event organised by ABB last Wednesday, Bangladesh Bank governor Abdur Rouf Talukder said that those who are in the top management of the banks, especially the chief executive officers, should take responsibility to reduce defaulted loans. This calls for change in the banking culture.

Question arises as to who will draw this plan and who will bring changes in the banking culture.

Mustafa K Mujeri, the former chief economist of Bangladesh Bank, told Prothom Alo, "Bankers, the board of directors and Bangladesh Bank all three parties should reduce the defaulted loans. They allow corrupt and influential clients to take loans. The actual amount of defaulted loans should be disclosed. Bangladesh Bank has to supervise the banking sector impartially with integrity, discretion and courage. They should set an example by punishing those responsible. Only then will the defaulted loans be reduced.”

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