Easing policies fail to reduce bad debts

Loan defaults in the banking sector jumped 16.38% year-on-year to Tk 103,274 crore in 2021, rendering the relaxed loan classification policy unveiled by the Bangladesh Bank largely ineffective.

Thus, analysts urged the central bank to take long-term policy measures to curb non-performing loans (NPLs) instead of putting in place short-term measures.

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The central bank has previously taken various measures, including easing rescheduling and loan classification policies, to get rid of NPLs. But the measures proved ineffective and brought no good to the banking sector.

The ratio of NPLs to outstanding loans and advances stood at 7.9% last year from 7.6% in 2020, according to BB data released yesterday.

A BB official said borrowers had political support in 2020 and 2021 as the government stepped up to help them weather the effects of the pandemic.

For example, the central bank declared a moratorium facility for borrowers throughout 2020, which reduced NPLs to Tk 88,734 crore, down 6% from 2019.

The easing policy also continued last year.

Under the policy, borrowers were also allowed to avoid slipping into default in exchange for giving just 15% of total installments payable last year.

The central bank official said some borrowers had been quick to file petitions for injunctions with the High Court not to have their loans shown as classified. But, the High Court later quashed the petitions following the submission of pleadings from the lenders. As a result, classified loans increased.

Sadiq Ahmed, vice president of the Bangladesh Policy Research Institute, said the slowdown in business resulting from the pandemic was one of the factors behind the increase in NPLs.

“We need to make concerted efforts to reduce bad debts. Short-term policy measures have not lowered NPLs. Authorities should take long-term measures,” he said.

Politically connected influencers frequently interfere in the loan sanctioning process of banks, worsening the health of banks, Ahmed said.

“Such interventions should be stopped in order to ensure corporate governance in the banking sector.”

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said loan defaults could rise further in the second quarter of 2022 as the impact of the removal of the relaxed loan classification policy is felt.

He said many customers did not use the easing policy, so banks were forced to grade a good chunk of loans.

“Additionally, some habitual defaulters had failed to repay installments despite repeated attempts by banks. We need to accelerate our loan recovery program in the coming days to reduce NPLs.”

Some borrowers who rescheduled their default loans before the pandemic were unable to repay the fund, according to Emranul Huq, managing director of Dhaka Bank.

The private commercial bank recovered a good part of the delinquent loans last year.

BB data showed that 47% of overdue loans were at the nine state-owned banks.

NPLs in state-owned banks rose 6% year-on-year to Tk 48,968 crore last year.

Forty-one private commercial banks held overdue loans of Tka 51,521 crore, up 28% from a year ago. NPLs in nine foreign banks rose to Tk 2,785 crore from Tk 2,038 crore.

National Bank, Agrani, Rupali, IFIC and UCB are the five lenders that have seen the largest increase in delinquent loans.

Mohammad Shams-Ul Islam, managing director of Agrani Bank, said the bank’s graded loans increased by 20% last year.

BB data, however, showed that the bank’s NPLs stood at Tk 7,756 crore last year, up from Tk 5,859 crore the previous year, an increase of 32%.

Islam explained that Agrani Bank’s actual loan defaults increased to Tk 6,472 crore in 2020 after the completion of the BB audit.

The ratio of bank-graded loans is even lower among state-owned commercial banks, he said.

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