Banks cut back only 17pc of written-off loans in 13 years
Banks cut back only about 17 percent of their written-off loans in the last 13 years despite several initiatives to recover the sums.
Between 2003 and 2015, the banks wrote off a total of Tk 40,361 crore, according to central bank statistics. Of the amount, Tk 33,581 crore remains outstanding.
Bank officials said they have made some cash recovery of the loans and gave interest waiver facility to some others. This resulted in the reduction of written-off loans.
“On several occasions, customers had to be provided with interest waiver to recover the loans,” said Pradip Kumar Dutta, managing director of Sonali Bank, adding that the whole amount being realised is not cash recovery.
The banks took various initiatives, including appointing private recovery agents, to realise their written-off loans but the result was not satisfactory.
“Every year we are recovering some amount of the written-off loans,” said MA Salam, managing director of Janata Bank, adding that officials are given target in this regard.
Both Sonali and Janata have stopped appointing private recovery agents now following dismal results.
Khondkar Ibrahim Khaled, a former deputy governor of Bangladesh Bank, said: “My experience is that the banks do not properly handle the private recovery agents.”
Mentioning a state bank, Khaled said a private recovery agent managed to realise Tk 60 crore of written-off loans, but the bank did not pay the agent any money for his service.
Nazrul Huda, another former deputy governor, said the banks should create a dedicated department for recovering the written-off loans.
Another option is appointing professional recovery agents, he said, adding that either the government or the BB can prepare a policy for the purpose.
“Globally, such loans are recovered through professional recovery agents,” he added.
The policy for writing off loans was introduced in 2003, when Fakhruddin Ahmed, a former chief adviser to the caretaker government, was the BB governor, with a view to cleaning up banks' balance sheet.
If the loans remain defaulted for five years, they will be written off, as per the policy.However, during writing off the loans a 100 percent provision has to be made against the loan amount, along with filing a case to realise the sum. In other words, the loans being written off did not mean complete relief for the defaulter.
On the other hand, it is a form of punishment for the bank as it would have to do provisioning from its income.
Writing off loans is an international practice as well as a banking practice, Huda said. The practice is applied for a loan that has no possibility of being recovered, so it is separated from the bank's balance sheet.
One of the reasons for separating those loans from the banks' balance sheets is that if any bank has huge debt burden international banks do not accept any letter of credit from it, Khaled said.
Several bank officials said, after adopting the policy, banks succeeded in cutting the amount of their default loans overnight.
Before 2003, the overall bad loans of banks soared to 44 percent of their total loans.
When Awami League assumed power on June 30, 2009, the banks' total default loans stood at Tk 22,973 crore, which was 10.50 percent of their total loans.
In March this year, the amount stood at Tk 59,411 crore, which is 9.92 percent of total loans.
Though the loan was lesser than in 2009 in percentage terms, it is still high as per the world standard of below 8 percent.
Khaled said, to get the true scenario of the banks' bad loans, the written-off loans must be added to the classified ones.
At the end of March, the banking sector's bad loans stood at Tk 92,992 crore, which is about 15 percent of the total loans. The central bank is yet to prepare the amount of loans that were written off this year.
The increase in default loans in recent times is due to appointment of political persons in state banks' board after the present government came to power.
The default loans in the state banks soared after the scams involving BASIC Bank and Hall-Mark scam in Sonali Bank.
The private banks' default loans soared too for aggressive lending practices. For instance, in Chittagong, private banks gave commodity loans competing with one another, which turned bad.
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