Committee formed to devise ways to recover money

The government is working to solve the state banks' longstanding problem of default loans against the Chittagong-based commodity traders, which has almost become a noose around the banks' necks over the last several years.

Banks had extended the loans without collateral to commodity traders in Chittagong under an arrangement that the sales proceeds from the imported commodity would be put in a trust for the bank until the loan amount is fully paid off.

Also called loan against trust, a major portion of them have become defaults and difficult to realise. By law, the firms cannot take fresh loans now, but some of the big commodity business groups are getting round it by taking loans from different banks under fictitious names, according to state bank officials. 

To unlock the current no-win situation, Finance Minister AMA Muhith last month formed a high-powered committee led by Agrani Bank Chairman Zaid Bakht.

The committee will work to provide recommendations on how the loans can be realised while keeping the activities of the firms going, Bakht told The Daily Star.

A meeting was held in the third week of June between the finance minister, chairmen and managing directors of the state banks, and finance ministry high officials to brainstorm how the default loans can be cut. 

One of the suggestions from the committee is to break down the instalment payment for the LTR loans into small parts and allowing repayment over a long period.

Earlier in 2016, the Bangladesh Bank conducted a study on how the LTR loan became defaults and could not be realised.

The study found that the price fluctuation of commodities in both the local and global markets was the reason for the LTRs turning defaults.

Exchange rate fluctuation, diversion of funds, and stocking commodities for a long period were also to blame.

According to the study report, the total LTR was Tk 48,312 crore until September 2013, which was 32.82 percent of the total outstanding trade financing. Of the amount, Tk 9,352 crore turned into term loans or default loans as those were not paid timely.

“One kind of evil competition has been observed among different bank branches in case of opening letters of credit and providing LTR facilities against large groups in order to meet their profit target at the branch level,” the report said.

Since the study was published, hardly much progress was made in realising the LTR loans, meaning the actual amount is now bigger due to build up of interests, said a finance ministry official.

In 2013, the state banks' default loans stood at Tk 24,963 crore; in March 2018, the amount became Tk 49,112 crore, according to data from the BB.