Numbers of small loan defaulters surge by 2.4m in one year

Alongside large clients, the number of small borrowers defaulting on loans is also steadily increasing in the banking sector, particularly CMSME and agricultural entrepreneurs, as well as housing and personal loan clients.

The number of defaulting borrowers with loans below Tk10 million has more than doubled over the past year, raising concerns over the deteriorating quality of retail lending.

According to Bangladesh Bank data, as of the end of March, the number of defaulted borrowers with loans under Tk 10 million rose to 4.543 million. This number was 2.163 million in March of last year. The figures were disclosed in the central bank's latest report.

The report says the sharp increase in small-loan defaults reflects a significant deterioration in the quality of retail credit.

Bangladesh Bank has identified the rising cost of living, increased household debt burdens, sluggish SME activities, and reduced repayment capacity in the agricultural and small business sectors as the primary reasons for this trend.

While large-value defaults cause greater financial losses, the rapid rise in defaults among small borrowers is an important warning signal for the overall financial sector, the central bank said.

Masrur Reaz, Chairman of the research organisation Policy Exchange, told Prothom Alo that the growing tendency of small borrowers to default is deeply concerning but not surprising.

He noted that the prolonged economic crisis and high inflation have reduced the financial repayment capacity of everyone, from salaried employees to small business owners, as the cost of living and utility expenses like electricity and fuel have surged.

According to the report, more than 34 per cent of total CMSME loans are now classified as defaulted. However, banks say it is difficult to generalise the overall trend in small-loan defaults across the sector.

Bangladesh Krishi Bank, which has the largest agricultural loan portfolio among state-owned and private banks, saw its number of defaulting borrowers decline from 2.4 million to 2 million over the past year.

Despite the improvement, 38 per cent of its total loan portfolio remains defaulted.

Mohammad Nurul Amin, Chairman of Krishi Bank, told Prothom Alo, "The government did not reimburse the amounts for the agricultural loans that had previously been written off. However, we have already received Tk 6 billion allocated for this latest loan waiver. At present, 38 per cent of our loan portfolio is classified as non-performing. We are making every possible effort to recover these loans and are strengthening the activities of our branch offices."

According to Bangladesh Bank, total outstanding bank loans stood at Tk17.84 trillion at the end of March, with the overall default loan ratio reaching 32.7 per cent.

Among all loan categories, loans of up to Tk10 million and loans exceeding Tk500 million account for a significant share of both defaulting borrowers and outstanding defaults.

Loans of up to Tk10 million totalled around Tk4.1 trillion, of which 15 per cent had become non-performing by the end of March.

Although the value-based default ratio remains comparatively low, the number of defaulting borrowers has increased from 2.16 million in March last year to 4.54 million this March.

Meanwhile, outstanding loans exceeding Tk500 million amounted to nearly Tk5.76 trillion, with more than 42.5 per cent classified as defaulted. The number of defaulting borrowers in this category rose from 1,478 to 2,035 over the year.

Asked about the situation, Md Altaf Hossain, Managing Director (Acting) of Islami Bank, told Prothom Alo, "If we exclude the loans of S. Alam Group, our defaulted loans are lower than the overall banking sector. Although the non-performing loan ratio across the entire sector is around 30 per cent, our bank's non-performing loan ratio is between 22 and 23 per cent. We are continuing our efforts to recover these loans or bring them back into regular repayment."

According to Bangladesh Bank, outstanding loans between Tk10 million and Tk100 million totalled around Tk3.61 trillion at the end of March, with more than 26.5 per cent classified as defaulted. The number of defaulting borrowers in this category increased from 25,477 to 28,501 over the year.

Default ratios in larger loan brackets were also high. Loans between Tk100 million and Tk200 million recorded a default ratio of 45 per cent, with the number of defaulting borrowers rising from 3,336 to 6,186. Loans between Tk200 million and Tk300 million had a default ratio of nearly 36 per cent, while the number of defaulting borrowers increased from 1,125 to 1,574.

For loans between Tk300 million and Tk400 million, the default ratio stood at nearly 39 per cent, with the number of defaulting borrowers increasing from 605 to 952. In the Tk400 million to Tk500 million category, the default ratio reached around 45 per cent, while the number of defaulting borrowers rose from 392 to 669.

Regarding the overall situation, Md Mazibur Rahman, Managing Director of Janata Bank, told Prothom Alo that alongside large loans, agricultural and SME sector loans are also beginning to deteriorate. Because of this, monitoring at the branch level has been intensified and efforts are underway to regularize these loans under the central bank's special policies.

Bangladesh Bank data shows that as of the end of March, the trade and commerce sector leads in defaults. 32 per cent of total bank loans are in this sector, nearly 44 per cent of which are now defaulted. Additionally, approximately 32 per cent of industrial loans and 34 per cent of CMSME loans have defaulted. Within the CMSME sector, the cottage industry has the highest default rate at nearly 53 per cent, while the default rate for medium-sized loans in this sector is about 38 per cent.

Consumer loans account for approximately 9 per cent of total bank loans, with a default rate of 7 per cent. The construction sector holds about 7 per cent of total bank loans, with a default rate of nearly 30 per cent.

Furthermore, about 4.25 per cent of total bank loans have been disbursed to the agriculture, fisheries and forestry sectors, where the default rate stood at nearly 30 per cent at the end of March.

Kamrul Mehedi, Deputy Managing Director of City Bank, told Prothom Alo, "Of our Tk 55 billlion in SME loans, the defaulted amount is Tk 930 million, most of which deteriorated during the COVID period. If support is not extended to small entrepreneurs in time, they fall into crisis. This is primarily why the trend of defaulting on small loans is increasing across the entire sector."