Default loan increases to Tk 6.5 trillion

More than one-third of all loans disbursed by banks in the country are now in default, with total defaulted loans reaching nearly Tk 6.5 trillion.

Until last September, the total amount of loans disbursed in the banking sector stood at Tk 18.04 trillion, of which 35.73 per cent is now in default. This information was stated in the updated report of Bangladesh Bank on Wednesday.

Bankers say that the tendency to understate default loans in the banking sector during the tenure of the ousted Awami League government no longer exists. As a result, the actual picture of non-performing loans is emerging. According to them, the volume of non-performing loans will increase further after some time.

In January 2009, when the Awami League-led alliance government was formed, the amount of default loans stood at Tk 224.81 billion.

Bangladesh Bank calculates default loans on a quarterly basis. In June, non-performing loans stood at Tk 6,083.46 billion. Over a span of three months, the amount increased by Tk 361.69 billion.

Bankers said irregularities, forgery, fraud and corruption in the banking sector during the Awami League’s 15 and a half years in power were so widespread that the high rate of default loans now reflects that reality.

Default loans increased significantly due to the scandals involving S Alam Group, BEXIMCO Group, Nassa Group, Bismillah Group, Hall-Mark Group and others, as well as the Basic Bank scam.

According to central bank sources, the default loan rate in the banking sector was 41.1 per cent in 1999. Although the default loan rate fell to 6.1 per cent in 2011, it began to rise again after the major scandals.

Former teacher of Economics Department at Chittagong University, Moinul Islam, told Prothom Alo, “Under Sheikh Hasina’s continuous 15-and-a-half-year rule, there was an attempt to understate the default loan through the central bank. We have seen attempts to conceal information by distorting data. After calculating accurately, the default loan rate reached nearly 36 per cent at the end of September. Although this is unbelievable, it is not unusual. Within a short time, this rate could even exceed 40 per cent.”

When asked about the way forward, Moinul Islam said, “I have been saying one thing for many years, and I am saying it again: a separate tribunal must be set up for the top 10 defaulters of each bank. Otherwise, we will not be able to get rid of this.”

Following the advice of the International Monetary Fund (IMF), Bangladesh Bank is using international standards to determine the amount and rate of default loans.

Bankers say this is another reason why the amount and rate of default loans have increased. According to the default loan policy, a loan will be considered overdue from the day after the repayment installment period ends. Until April, a loan was not counted as default for nine months after the installment period ended. Now, a loan is considered default just three months after becoming overdue.

Alongside the rise in default loans, the provision shortfall is also growing significantly. In return for default loans, banks keep a certain amount from their earnings as a reserve for security. One of the main reasons for this is to protect customers’ deposits even if the loan cannot be recovered for some reason. A provision shortfall occurs when a bank fails to maintain the required security reserve or provision against its default loans.

The central bank figures show at the end of September, the provision shortfall in the banking sector stood at Tk 3.44 trillion. Three months earlier, it was Tk 3.2 trillion. Over the three-month period, the provision shortfall increased by Tk 245.11 billion.

Defaulting customers exist in almost all banks, though foreign banks have fewer and state-owned banks have more. The amount of default is relatively higher in Janata Bank, Agrani Bank, National Bank, and IFIC Bank. However, the liability of the five banks that are about to be merged is not small in terms of total default growth. First Security Islami Bank, Social Islami Bank, Union Bank, Global Islami Bank, and Exim Bank are set to be merged. Of the nearly Tk 2 trillion loans of these five banks, Tk 1.5 trillion are defaulted.

Except for Exim Bank, the other four were under the control of S Alam Group, a clique of former prime minister Sheikh Hasina. They withdrew huge sums of money from these banks under various names, which are now defaulted.

The chairman of state-owned Agrani Bank, Syed Abu Naser Bakhtiar Ahmed, told Prothom Alo that default loans have risen from Tk 2–4 trillion, then Tk 4–6 trillion, and have now reached Tk 6.5 trillion. For years, instead of publishing default loan data, the banks concealed it and falsified records to show profits.

Syed Abu Naser Bakhtiar Ahmed further said the matter is nothing other than the result of irregularities and corruption during the previous government’s tenure. After the caretaker government took over, Bangladesh Bank announced that default loans would be calculated transparently and data falsification could no longer continue.

According to him, although the amount of default loans has increased, the true figures are emerging, this is the positive aspect