Non-performing loans (NPLs) of banks rose by a staggering BDT 1,551 crore in three months till June this year, taking the amount to BDT 112,425 crore.
As of June, the total bad loans accounted for 11.69% of the total disbursed loans of BDT 9,62,077.26 crore, according to the latest statistics by Bangladesh Bank.
At the end of March 2019, the total non-performing loans in the banking system was at BDT 110,874 crore, or 11.87% of the total disbursed loans. Default loans rose by 19.71 percent during January-June period this year as the loan was BDT 93,911.4 crore at the end of December, 2018.
Comparing last one year statistics, the non-performing loans rose by BDT 23,085 cr in the last one year to June this year. Total NPLs in the banking system was at Tk 89,340.01 crore at the end of June, 2018.
However, the total default loan amount would reach to BDT 1,65,683.17 crore if the written-off loans taken into consideration, which were erased from banks’ balance sheet. Amount of such loan is BDT 53,258 crore. Furthermore, recovery of another BDT 80,000 crore has remained stalled due to involvement of court orders, taking the total to BDT 2.46 lakh crore.
The central bank has taken several initiatives to reduce the rising of the default loan this year. On April 25, Bangladesh Bank issued new policy on loans classification and provisioning to reduce high amount of defaulted loans. It extended the time beyond which an amount of loan will be deemed to have been defaulted.
However, while the Economists and experts were suggesting for taking tough measures against the loan defaulters to recover the money, the government opted to ease loan rescheduling system in January 2019. Under the package defaulters were allowed to reschedule loans for 10 year inclusive of one-year grace period with just 2 percent down payment, following which overall loan recovery slowed down.
Despite these initiatives, the defaulted loans have continued to soar as experts think that there is a lack of transparency in the disbursement of loans which resulted in the increase of BDT 1,551 crore in three months.
Economists and senior bankers blame the culture of impunity enjoyed by loan defaulters, political interference in approving loans, and lack of experience among bankers in dealing with pressing issues for bad condition of the banking sector. They also blame for the lack of “due diligence” in the loan disbursement process.
Of the total NPLs, defaulted loans of six state-owned commercial banks stood at BDT 53,744.64 crore or 31.58% of their total disbursed loans at the end of June this year. Defaulted loans of private commercial banks (PCBs) stood at Tk 51,924 crore or 7.13% of their total loans.
Defaulted loans of foreign banks stood at BDT 2,057.62 crore or 5.48% of their total loans till June. NPLs of two specialized banks, Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank, stood at BDT 4,696.83 crore or 17.82% of their total loans.
Overall impact of the default loan also being shown on the provision shortfall as the combined provisioning shortfall is estimated at BDT 12,897 crore at the end of June this year, exposing their weak financial health of the banks.
Thirteen public and private sector banks are on the list, according to the Bangladesh Bank latest data. Of the 13 banks, four are state-owned, while the remaining nine are private commercial banks.
The thirteen banks are – Sonali Bank, Agrani Bank, Rupali Bank, BASIC Bank, AB Bank, Bangladesh Commerce Bank, Dhaka Bank, Mutual Trust Bank, National Bank, Standard Bank, Shahjalal Islami Bank, Social Islami Bank and Trust Bank.
Of the banks, BASIC Bank suffered highest BDT 3,073 crore in provision shortfall and Sonali Bank second highest BDT 1,942.2 crore in provision shortfall. Rupali Bank faced at BDT 982.73 crore in provision shortfall and Agrani Bank suffered BDT 852.88 crore in provision shortfall.
Of the private commercial banks, provision shortfall of AB Bank stood at BDT 3,593.5 crore, Bangladesh Commerce Bank’s at BDT 511.11 crore, Mutual Trust Bank’s at BDT 126.45 crore, Dhaka Bank’s at BDT 329.58 crore, National Bank’s at BDT 727.83 crore, Shahjalal Islami Bank’s at BDT 100.3 crore, Social Islami Bank’s at BDT 370 crore, Standard Bank’s at BDT 103.34 crore and Trust Bank’s provisioning deficit stood at BDT 183.61 crore.
As per central bank regulations, banks have to keep 0.50% to 5% provision with Bangladesh Bank against defaulted loans for general category, 20% against classified loans of sub-standard category, 50% against classified loans of doubtful category, and 100% against classified loans of bad or loss category.
As the statistics shows, capital base of those 13 banks will erode significantly as they have to keep provisioning as per the central bank rules.
The banking sector was hit by a series of scams and irregularities over the past several years, with the latest scam involving BDT 3,572.98 crore in Janata Bank by five subsidiaries of the Crescent Group and another of BDT 5,508 crore by Anontex in the same bank in the outgoing financial year 2018-19.
In 2012, Bismillah Group swindled about BDT 1,100 crore from Janata Bank and the Hallmark Group siphoned out about BDT 3,500 crore from Sonali Bank in 2013.
In 2016, a central bank investigation found that Farmers Bank (now Padma Bank) sanctioned and disbursed loans and hid defaulted loans amounting to about BDT 400 crore in violation of banking rules.