Delayed loans in Bangladesh jumped in the first half of 2021 as borrowers struggle to repay due to the business slowdown caused by the coronavirus pandemic.
Non-performing loans (NPLs) stood at Tk99,205 crore in June, up 11.80 percent from six months earlier and 3.21 percent year-on-year, according to data from the Bank of the Bangladesh.
Analysts say non-performing loans increased as the central bank lifted the loan moratorium facility, which prevented borrowers’ credit status from deteriorating even though they did not pay installments regularly Last year. Although the BB has asked banks to follow a relaxed policy on loan classification until August of this year, it has not had a substantial impact in curbing the upward trend in defaulted loans.
In June, the BB said borrowers would be able to avoid the zone of default by repaying 20% of their loan maturities payable from June. Borrowers will have to clear the payment by August.
The central bank has eased the policy given the slowdown in business resulting from the latest spread of coronavirus infections. NPLs also rose 4.33% in June from March, when the volume stood at Tk 95,085 crore.
Bad debts accounted for 8.18 percent of total outstanding debts of Tk 121,314 crore in June.
The ratio was 8.07% in March of this year and 7.66% in December of last year. However, it was down from 9.16% in June last year. “The upward trend in NPLs indicates that the economic recovery has yet to regain momentum,” said Salehuddin Ahmed, former central bank governor.
“The central bank should take strict action against the usual defaulters to recover their funds, as they are the main reason for the current situation of the banking sector.”
He advocated a relaxed approach for small and medium-sized businesses, however, as they had been going through dire straits since the start of the pandemic.
“The central bank should take their difficulties into account and allow them to reschedule their default loans in a relaxed manner.”
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said the upward trend in defaulted loans was roughly expected due to the latest wave of the pandemic.
Although the central bank relaxed its loan classification policy, it had also said that the easing would depend on the bank-customer relationship.
“So many banks are now classifying loans, which are unlikely to be made,” Rahman said.
He warned that stressed assets could swell further in the coming days as the economy needs more time to return to the high growth path.
Ahsan H Mansur, executive director of the Bangladesh Policy Research Institute, said the existing relaxed facility largely contained NPLs.
“It is a timely decision because the policy helps real entrepreneurs a lot.”
“The central bank should maintain the facility until companies feel comfortable and regain their confidence.”