Banks have rescheduled a record Tk 15,469 crore loans in the second quarter apparently to show on paper non-performing loans have reduced.
The rescheduled loan amount for April-June quarter is 165 percent higher than that of January-March, according to the latest data from Bangladesh Bank. In the October-December quarter, loans worth Tk 12,247 crore were rescheduled, the previous record in any quarter.
What’s more, many of those loans were regularised without the required down payment, usually ranging between 5 and 50 percent of the loans, central bank officials said.
On January 10, AHM Mustafa Kamal, after becoming the finance minister, said that non-performing loans would not grow even by a single penny from that day, it would rather reduce.
However, the annual rescheduled loan figure is all set to break the record and the amount of default loans also skyrocketed.
Last calendar year, loans worth Tk 23,210 crore were rescheduled but in the first six months of this year, loans worth Tk 21,308 crore had already been rescheduled.
The lion’s share of the loans rescheduled last quarter was default loans. Despite this wholesale rescheduling, default loans stood at Tk 112,425 crore as of June this year, up 19.71 percent from six months ago.
“The central bank is frequently letting banks reschedule default loans in recent times going against its own policy as it is desperately looking for ways to bring down NPLs [non-performing loans],” a BB official said.
According to BB guidelines of 2012, defaulters have to pay at least 5 percent of their loan to reschedule it the first time. When rescheduling it for the third time, the down payment goes up to 50 percent. The defaulters are allowed to reschedule their loans only three times.
“In most cases, the central bank gave special permission to banks to reschedule default loans without the mandatory down payment,” said the BB official.
The last quarter’s data show, state-owned Bangladesh Krishi Bank rescheduled loans worth Tk 5,394 crore, the highest, followed by Islami Bank Bangladesh Tk 3,397 crore, Mercantile Bank Tk 1,483 crore, AB Bank Tk 1,207 crore, and state-owned Agrani Bank Tk 907 crore.
This type of benefit for borrowers did not work before, said economists terming the loans toxic.
“This [rescheduling of loans] shows the entire financial sector is gloomy,” said Ahsan H Mansur, executive director of Policy Research Institute, a private think-tank.
He said the country had been achieving high economic growth, more than 8 percent last fiscal year, but the rescheduling of loans depicts a different picture.
The central bank is trying to bring down non-performing loans without doing due diligence, he said.
“This will not bring any good to the banking sector as most of the rescheduled loans will become default again. And, we have seen such kind of examples before,” said Mansur, also chairman of Brac Bank.
Salehuddin Ahmed, a former central bank governor, said many banks have rescheduled their default loans recently without taking the required down payment, which would further threaten the banking sector.
“Banks’ capacity to disburse fresh loans would reduce further,” Salehuddin said.
A top banker also termed the trend “not a good sign for the economy”.
“Large amount of rescheduling of loans indicates that banks could not recover their loans. This will erode their reinvestment capacity,” said Syed Mahbubur Rahman, president of the Association of Bankers Bangladesh, a forum of private banks’ managing directors.
He said this has worsened the liquidity stress further and hit the private sector credit growth hard in recent months.
The managing director of Dhaka Bank suggested that banks be more cautious in selecting borrowers and that they should monitor borrowers more closely.
The central bank in its 2018 financial stability report expressed concerns over the growing trend of loan rescheduling.