Loan defaulters incentivised

The government has given more benefits to loan defaulters through relaxing the principles of writing off bad loans of more than three years, a measure that experts say would give advantage to the banks as well.

According to the new principles on writing-off loans, issued as a circular Wednesday, the Bangladesh Bank (BB) said the banks can exclude classified loans of three years from their balance sheet instead of existing five-years period.

As a result, the banks will be able to show the amount of default loans to be less than the actual ones on paper. At the same time, they will not have to file lawsuit to write off a loan amounting up to Tk 200,000 from the existing amount of Tk 50,000.

The new BB circular also said the banks will not have to deposit security money against the total amount of such loans.

Salehuddin Ahmed, former governor of the central bank, said, “The time to write off bad debts has been decreased just to show the amount of default loan less in paper. This won’t solve the main problem.”

“The banks are disbursing loans without checking everything properly, sometimes under pressure. There’s no good governance in the banks as well. This has to be resolved,” he said.

The central bank said all the banks have to follow the circular for the betterment of prevailing situation in the banking sector, to adopt the international standards and to modernise the legal structure.

The new decision came when the new finance minister, AHM Mustafa Kamal, is vocal about the default loans, especially for derereasing the amoubnt of such loans.

Salehuddin Ahmed said to Prothom Alo, “Loan defaulters will become more aggressive if they are given such benefits and might come up with new demands. The Bangladesh Bank will have to strictly supervise the sector. The government’s will is necessary to do that.”

He also warned against waiving of the loans written off without filing cases. “No one will take care of those debts if there is no lawsuit about those.”

Amount of written off loans

The practice of writing off loans began in Bangladesh in 2003. The central bank issued a circular that year as the amount of default loans crossed the danger level.

Since then the banks have written off loans of Tk 497.45 billion taken by Hallmark Group, Bismillah Group, Nurjahan Group and many others, until September 2018. Of the amount, Tk 118.79 billion has been realised until then.

The amount of default loan, except the written off ones, by that time was Tk 993.7 billion which means the amount of total default loan was Tk 1.36 trillion.

According to the central bank, Sonali Bank has written off loan of Tk 84.29 billion, Agrani Bank Tk 54 billion, Janata Bank Tk 49.85 billion and Bangladesh Development Bank Ltd Tk 28.15 billion.

Several private banks have also written off bad debts. Among them, National Bank has written off Tk 21.54 billion, The City Bank Tk 19.03 billion and IFIC Tk 18.14 billion.

The bankers, however, lauded the new principles.

Association of Bankers, Bangladesh, chairman Syed Mahbubur Rahman said, “The amount of default loans will decrease due to this new principle.”

He, however, cautioned that the banks will have to deposit security money equivalent to the amount of the written off loan. “This will be a pressure for many banks but many will get benefits as well.”

The circular also said no loan can be written off without the consent of the bank’s board of directors and the bank’s claim will be valid even after writing off. The loan cannot be restructured and the person involved will be considered a defaulter until the debt is repaid.

The new circular also directed each bank to form special unit to realise written off loans.

It also made the central bank’s approval mandatory to write off loan of a member of the board of directors of a bank.