The central bank reported that Bangladesh banks have rescheduled default loans of BDT 20,732 crore up to nine months of 2024 (Jan-Sept). The breakup is below:
Q1 (Jan-Mar): BDT 2,448 crore
Q2 (Apr-Jun): BDT 10,928 crore
Q3 (Jul-Sept): BDT 7,356 crore
The amount is BDT 1,922 crore up compared to its corresponding quarter of 2023, where banks had rescheduled default loans of BDT 18,810 crore.
State-owned banks vs Private banks vs Specialized banks (Jan-Sept 2024):
State-owned banks: BDT 1,650 crore
Private banks: BDT 17,963 crore
Specialized banks: BDT 1,120 crore
Why Are We Witnessing More Default Loans?
Experts indicate that there are ample reasons behind default loans on the uprise:
Irregularities and Political Influence: Many loan takers default on loans but are let off on behalf of political patronage and bank board collusions.
Frequent Options of Rescheduling: The borrower is allowed to reschedule loans repetitively, keeping him or her out of default lists.
Bank Manipulation of Banking Sector: The bank likes to reschedule loans to give better financial outlook on paper, keeping itself out of keeping provisions of big loans gone bad.
Policy Reforms and Their Impacts
The Bangladesh Bank had exclusive power of approving loan restructuring earlier on. But on 1st of July, 2022, that power passed on to each bank separately, resulting in unregulated loan restructuring by banks to lower reported non-performing loans or NPLs on its book of loans.
The former Dhaka-based World Bank’s lead economist, Dr. Zahid Hussain, warned that:
“The borrowers are refinancing old loans using fresh loans, keeping them out of default lists. Thus, defaulters continue to remain on eligibility lists of fresh loans, and banks continue to tinker around financial statements.”
Again, he added that there is need for tighter rules, including:
Single option of loan rescheduling allowed to every borrower
Upgrading of down-payment requirement on loan restructuring
Previously, banks were charging 10-30% of loan amount as advance on loan rescheduling.
Now, loan can only be rescheduled on advance of 3%.
Large loans of amount of > BDT 500 crore can be rescheduled unlimited times, up to repayment terms of 16 years.
Overall Status of Default Loans of 2024
As of June 2024, Bangladesh’s overall distressed loans (default loans, loans that have been rescheduled or restructuring or have been written off) were BDT 6,75,030 crore, broken up by category as below:
Default loans: BDT 2,11,391 crore
Rescheduled & Restructured loans: BDT 2,72,856 crore
Written off loans: BDT 75,389 crore
Special mention loans: BDT 39,209 crore
Loans under protection of court order: BDT 76,185 crore
As of September 2024, default loans were up to BDT 2,84,977 crore or 17% of overall loans, up from compared to 9% of overall loans or BDT 1,45,633 crore of Dec-2023.
Fears of Future
Bangladesh Bank’s Governor, Dr. Ahsan H. Mansur, stated that:
“Nowadays, NPLs are reported officially only 12.5%, but actually, it is much bigger. By next month, it will hit 15%, followed by 17%, and finally, it will hit 25-30%”.
The rapid pace of default loans is endangering Bangladesh’s banking industry’s health, and unless there is tighter regulation and compliance, things will only move downward.
Source: Dhaka Post
