State banks' rescheduled loans turn bad again
State banks' large loans that were rescheduled nearly two years ago to support the borrowers have turned bad again.
Bangladesh Bank data shows default loans increased by Tk 10,801 crore last year to take the total figure to Tk 62,172 crore as of December 31, 2016. Of the new default loans, eight state banks alone accounted for 74 percent or Tk 7,997 crore.
The banks are -- Sonali, Janata, Agrani, Rupali, BASIC, Bangladesh Development Bank, Krishi Bank, and Rajshahi Krishi Unnayan Bank.
“A big portion of the loans that were regularised under the large loan rescheduling scheme has turned defaulted again,” said Zaid Bakht, chairman of state-owned Agrani Bank, one of the largest banks in the country in terms of the number of branches.
This is a major reason behind the rise in bad loans, he said.
Of the total default loan figure of Tk 62,172 crore, the eight state banks accounted for 59 percent or Tk 36,709 crore, BB data shows.
Salehuddin Ahmed, former central bank governor, said the wholesale rescheduling of loans in the pretext of political instability was not right; it should have been given according to merit.
“A borrower may get his loans rescheduled once, twice or thrice, but he cannot take the benefit again and again.”
In 2015, banks rescheduled Tk 26,308 crore in bad loans, which was 50.1 percent higher than that in 2014, according to central bank statistics.
Under pressure from influential businessmen last year, the central bank also offered a special restructuring opportunity for loans upwards of Tk 500 crore.
Under the facility, loans worth Tk 16,410 crore were restructured.
On average, banks rescheduled Tk 10,909 crore a year between 2010 and 2014, according to a study by Bangladesh Institute of Bank Management (BIBM).
BIBM prepared the report -- Implication of Loan Rescheduling and Write-off on the Performance of Banks -- last year after analysing data from 2010 to 2014 and recording the statements of bankers.
Bakht said, “Cases should now be filed against those who took large loans as they cannot be spared anymore.”
The loans cannot be recovered without putting pressure by filing cases against them, he added. However, the medium scale borrowers may be given some time by rescheduling their loans so that they can repay, Bakht said.
Ahmed said, in such cases in other countries, the defaulting borrowers are jailed, with a provision to seize their property. In Bangladesh, nothing such happens, he added.
The default loans are the highest in the public sector banks, said the former governor. No real action is visible against those who are responsible for the default loans, he added.
The default loans in the state banks are increasing due to a lack of sincerity and seriousness of the government, said Ahmed. “If we look at different indexes of Sonali Bank, there is not much scope for optimism,” Finance Minister AMA Muhith had said at the bank's annual conference on February 5.
Last year, Sonali Bank's default loans rose 26 percent compared to the previous year. More than a third of the bank's total loans are non-performing.
“Sonali has a large scale capital deficit. Its default loans and loss-making branches are more than one-fourth of the total. These indexes do not instil much hope. However, we have to be hopeful,” Muhith added.
At the same function, State Minister for Finance and Planning MA Mannan said, “The country's banking sector saw many developments, but the public sector banks do not seem to enjoy too many positive opinions.”
In 2016, bad loans in the private banks rose by Tk 2,297 crore to stand at Tk 23,057 crore.
Officials of private banks said although the overall situation is good, the condition of some banks is grave, and the central bank has deployed observers there.
A central bank official said the banks where ownership is bad have experienced the worst situations. Many of these owners are influential; hence, the central bank faces difficulties taking action against those banks, the official added.
“Many borrowers, especially the influential borrowers and wilful defaulters, place unethical requests and create pressure on banks to regularise their problem loans by rescheduling, without proper justification to do so,” said the BIBM study.
The government, judicial authority, central bank, law enforcement agencies, political parties, trade associations and the media should work to restrain bad borrowers from unethical practices, it added.
The rescheduling of delinquent loans is actually a deferral process of accumulating default loans.
The move puts immense pressure on the bank's capacity to recover the loans, which are not only 'toxic assets' but will go on to become irrecoverable in the long run.
The study shows that the recovery of rescheduled loans is small and realisation of funds from large borrowers even smaller.
On December 31, 2016, default loan as a percentage of total outstanding loans was 9.23 percent, which was 8.79 percent one year back.
However, compared to September 30, 2016, the default loan declined slightly in December. On September 30 last year, it was 10.34 percent.
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