BB asks banks to be tough on top defaulters

The top 20 defaulters account for 46 percent -- or Tk 32,432 crore -- of the total default loans in the banking sector, much to the Bangladesh Bank's concern.

Furthermore, the banks' credit recovery from the top 20 defaulters is poor considering the large amount of default loans stuck with them.

Against the backdrop, the central bank on Wednesday issued a letter to managing directors of all banks asking them to set an annual credit recovery target from the top defaulters.

These top defaulters have played a crucial role in the latest volatile situation of the banking sector.

"Recovery measures taken by the banks from the top defaulters are not effective. So, the banks will have to take fresh measures to reduce the concentration of default loans," said the BB letter.

The banks have been asked to submit their credit recovery-related statement to the BB every quarter. The BB also asked the banks' management to take approval of the credit recovery target from their respective board of directors.

As per the Bank Company Act, 1991, the doubtful and bad category loans are considered default loans and the substandard category classified loans. But the former are also treated as classified loans at times.

A client has to be marked a defaulter if he/she does not pay any loan instalment for six months straight.

As of September last year, the total default loans in the banking sector stood at Tk 72,008 crore, up from Tk 56,957 crore at the end of December 2016, according to data from the BB.

The central bank has long been pressing banks to intensify their recovery of default loans from the top defaulters, but it went to deaf ears, said a BB official.

"We had no option but to issue the latest instruction."

The majority of the top defaulters have taken the loans by breaching the banking norms, while some bank officials and board members helped them too, he added.