Default loans surge close to Tk 1 lakh crore

Default loans in Bangladesh surged in the first half of 2021 as borrowers struggle to pay back due to the business slowdown caused by the coronavirus pandemic.

Non-performing loans (NPLs) stood at Tk 99,205 crore in June, up 11.80 per cent from six months earlier and 3.21 per cent year-on-year, data from the Bangladesh Bank showed.

Analysts say that NPLs increased as the central bank lifted the loan moratorium facility, which had prevented downgrading of the credit status of borrowers even if they failed to pay instalments regularly last year. Although the BB has asked banks to follow a relaxed policy on loan classification until August this year, it has not had a substantial impact to rein in the upward trend of the default loans.

In June, the BB said borrowers would be able to avoid the default zone by repaying 20 per cent of their loan instalments payable as of June. Borrowers will have to clear the payment by August.

The central bank relaxed the policy given the business slowdown deriving from the latest spread of coronavirus infections. NPLs also increased 4.33 per cent in June compared to March when the volume stood at Tk 95,085 crore.

The bad loans accounted for 8.18 per cent of the total outstanding debts of Tk 121,314 crore in June.

The ratio was 8.07 per cent in March this year and 7.66 per cent in December last year. It, however, was down from 9.16 per cent in June last year. "The upward trend of NPLs indicates that the economic recovery is yet to get back its momentum," said Salehuddin Ahmed, a former governor of the central bank.

"The central bank should take a strict measure against the habitual defaulters to recover funds from them as they are the main reason for the current situation in the banking industry."

He, however, advocated a relaxed approach for the small and medium enterprises as they had been going through dire straits since the start of the pandemic.

"The central bank should consider their hardship and allow them to reschedule their default loans in a relaxed manner."

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said that the increasing trend of default loans was pretty much expected because of the latest wave of the pandemic.

Although the central bank has eased its policy on loan classification, it had also said that the relaxation would depend on the bank-customer relationship.

"So, many banks are now classifying loans, which have little chance to be realised," Rahman said.

He warned that stressed assets might swell further in the days ahead as the economy required more time to return to the high growth trajectory.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said that the existing relaxed facility had contained NPLs to a large extent.

"This is a time-befitting decision as the policy helps genuine entrepreneurs a lot."

"The central bank should continue the facility until the businesses feel comfortable and get their confidence back." 


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