Bangladesh Bank has announced a new loan write-off policy relaxing the previous conditions. As per the loan write-off policy, banks can write off the default loans that have been in the bad and loss category for two years from their balance sheet. Previously, it was three years.
Besides, Bangladesh Bank imposed several restrictions to boost the recovery of write-off loans, as well as announced several incentives for the loan collectors. Banks will also form their own ‘write-off loan collection unit’ led by their managing directors, also consider the collection of write-off loans for the appointment or reappointment of managing directors. The collection of write-off loans will be considered as one of the major achievements for the reappointment of the managing director.
But the problem is major portion of the defaulted loans are many years old. The question remains on how much of these conditions will apply to the new managing director. Bangladesh Bank unveiled a roadmap this month to cure the old ‘disease’ in the country’s banking sector, and the loan write-off policy is relaxed as part of this roadmap.
Questions remain on the effectiveness of the Bangladesh Bank’s decision to give incentives to bank officials including the managing director for the collection of write-off loans. Many bankers want to get the incentive by showing less write-off loans in documents, and Bangladesh Bank must remain aware of it. Sanctioning loans on political consideration of influence must stop. It is also necessary to stop the bad habit of lending from one bank to another.
Bangladesh Bank claimed if the loans that have been defaulted for two years are written off, overall defaulted loans will fall to a little of Tk 430 billion, which is 2.76 per cent of total loans outstanding in the banking sector. The central bank targets to bring down overall defaulted loans to 8 per cent of all outstanding loans within 2026. Defaulted loans, according to Bangladesh Bank, accounted for 9 per cent of all outstanding loans in December 2024. According to unofficial sources, the amount of defaulted loans is more than the central bank estimates.
As of October 2023, Bangladesh ranked second highest in default loans in South Asia. Bangladesh is followed by Sri Lanka, which was about to go bankrupt, with 13.33 per cent. The loan default rate in India and Pakistan was 3.9 per cent and 7.4 per cent of the total loans. So, what is the meaning of setting the target at 8 per cent in Bangladesh? Bangladesh Bank might have a room for complacency, but the possibility of a drop in default loans is very low.
To reduce the defaulted loan, its reasons must be found first. Neither the government nor the Bangladesh Bank is unaware of those who are not repaying after taking huge amounts of loans. Defaulted loans exists always, but hold accountable those who have destroyed the better-performing banks. Then, defaulted loans will reduce spontaneously and nothing much will be necessary for the write-off loan.
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