Defaulted Loans: Cash recovery nosedives

Cash recovery from defaulted loans declined sharply in the first quarter of this year as business activities of the beleaguered clients in Bangladesh worsened due to the economic hardship stemming from the Covid-19 pandemic.

Banks collectively recovered Tk 1,585 crore, down 23 per cent from three months earlier and 7 per cent from a year ago, showed data from Bangladesh Bank.

Lenders are also struggling to settle pending cases with the money loan courts as many of them are unable to operate their normal activities because of the strict restrictions on movement, said bankers.

This has had an adverse impact on the recovery process.

Banks usually recover more than Tk 2,000 crore from their defaulted loans per quarter, but their efforts started to face a roadblock when the Covid-19 arrived on the shores of the country in March last year.

A Bangladesh Bank official said defaulted loans in banks had increased alarmingly in the first quarter at a time when cash recovery from non-performing loans (NPLs) declined substantially, sounding the alarm of a possible threat for the banking sector.

The NPLs stood at Tk 95,085 crore as of March, up 7.1 per cent from three months earlier and 2.8 per cent year-on-year.

The trend has given an indication that defaulted loans may pile up more in the days to come, said the central bank official.

Sohail RK Hussain, managing director of Meghna Bank, said cash recovery from both unclassified loans and NPLs had experienced sluggishness in recent months due to the business slowdown.

Banks usually realise a good amount of default loans by settling associated cases with the money loan courts, he said.

But the restrictions on movement from time to time made it difficult to smoothly run court operations, he said.

The number of unsettled cases in the courts has been on the rise, putting an adverse impact on the recovery of funds from the NPLs, said Hussain.

In some cases, defaulters file writ petitions in the courts to show their loans to be unclassified, after which banks normally vacate the writs, he said.

"But, we are facing difficulties in vacating the writs," he said.

Banks have to take assistance from law enforcement agencies to take possession of land provided by defaulters as security against their loans, he said.

"We have recently got an order from the court to take over a land. But the bank has been unable to get required support from the law enforcement agencies," he said.

Members of the law enforcement agencies are now spending busy times containing the pandemic, he said.

The feeble recovery may continue until at least the third quarter of this year, he said.

If the pandemic situation escalates further, the cash recovery will face more hurdles in the days to come, said Hussain.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said the slow pace of recovery was not unexpected given the ongoing situation.

Banks usually conduct a major drive in the last quarter of every year, he said.

For this reason, recovery of the NPLs enjoyed a momentum between October and December last year despite the pandemic.

But the trend of loan recovery failed to meet expectations as the pandemic battered businesses, he said.

Against this backdrop, defaulted loans may go up further in the coming days, Rahman said.

Md Abdus Salam Azad, managing director of Janata Bank, said some top defaulters of banks had earlier given commitment to provide a lump sum amount as repayment of their loans.

"They did not repay the loans as the pandemic worsened their business performance further," he said.

Private commercial banks recovered Tk 642 crore from defaulters in the first quarter of this year and state-owned commercial banks realised Tk 167 crore.

Defaulters of specialised development banks repaid Tk 750 crore while the beleaguered borrowers of foreign banks gave Tk 26 crore.