Bangladesh Bank’s new ‘gift’ for loan defaulters

Prothom Alo illustration

Bangladesh Bank on the one hand sees high default loans as a major threat to the financial sector, on the other hand has adopted a policy of giving more concessions to loan defaulters. It will be considered as a new 'gift' for them before Eid.

According to a Bangladesh Bank notification, if one institution of a business group defaults on a loan, other institutions of the group can take loans and will not be considered defaulters. But the bank will see whether the institution is a willful defaulter, or has defaulted due to rational reasons and give final approval considering this factor. This opportunity was extended to the defaulter customers by amending Bank Company Act in July last year.

Non-performing loans (NPLs) or defaulted loans in the banking sector reached an all-time high at Tk 1.45 trillion (145,633 crore) in December 2023, which accounted for 9 per cent of all outstanding loans. The NPL was slightly more than Tk 224.8 billion when Awami League assumed power in 2009. That means, the defaulted loan has increased six and half fold in the last 15 years. According to BB, the amount of bad loans in the country including suspended, written-off and rescheduled ones is almost Tk 3 trillion.

Several directors of banks in last June recommended government highups to provide a chance to extend loans to institutions of a business group even if other institutions of the group default on loans. The BB extended this chance nine months later. It should be pondered whether BB took this decision only due to pressure from the bank directors.

BB’s former chief economist Mustafa Kamal Mujeri told Prothom Alo, “It is difficult to identify willful defaulters. The powerful group has succeeded in changing the law. Now they will sanction loans by proving that they are not willful defaulters.”

It is not difficult for the loan defaulters to prove they did not default loan willfully. They can easily collect positive certificates from the board of directors of banks and settle the cases filed for defaulting loans. There is nothing to be content as the volume of defaulted loans came down slightly towards the end of last year. As for the entire year, the amount of defaulted loans did not decrease at all, but increased by Tk 250 billion.

However, the central bank alone cannot be blamed for this situation. The monitoring body can do little when the government itself makes law to extend facilities to defaulted borrowers. Earlier the central bank announced a roadmap to bring discipline in the banking sector and decrease the amount of defaulted loans. BB targeted to reduce the overall NPLs of banks to below 8 per cent. But if the newly issued directives of BB are implemented, the NPLs will increase further and the central bank’s plan to bring some order to the already drowning banking sector will fall flat.