Bangladesh Banks' default loans rise 20pc in six months - Daily Star
12:00 AM, September 11, 2018 / LAST MODIFIED: 11:30 AM, September 11, 2018

Banks' toxic loans rise 20pc in six months

Banks' nonperforming loans rose by 20.23 percent, or Tk 15,037 crore, in the six months to June this year owing to poor lending practices and absence of corporate governance.

The amount of the toxic loans hit Tk 89,340 crore in June, according to Bangladesh Bank data released yesterday.

Nearly 50 percent of the loans belong to half a dozen state-owned banks, according to the central bank data.

This chunk now accounts for 10.41 percent of the total loans given by the banking sector, up from 9.31 percent in December last year.

Khondker Ibrahim Khaled, a former deputy governor of the Bangladesh Bank, feared that the NPL would increase further in the next few quarters as some banks earlier lent large amount of loans violating banking norms.

“The asset quality of the banks has been deteriorating for the last one decade and many defaulters have frequently rescheduled their classified loans.”

This frequent rescheduling of loans is helping the NPL amount look much lower than the actual figure, Khaled said.

The upward trend of default loans indicated that banks have sanctioned many loans breaching rules and regulations, he said. 

Borrowers are allowed to reschedule their default loans for a maximum of three times in line with the Bank Companies Act 1991. Khaled said some of the borrowers have already taken the full rescheduling facilities and the NPL would rise further as they can no longer use the scope.

Default loans also increased nearly 1 percent in the April-June quarter from the previous three months when NPL stood at Tk 88,589 crore.

The six state-banks' total default loans stood at Tk 42,852 crore, up 14.80 percent from six months ago.

Khaled said the state banks are mainly responsible for the scams that later spilled over into the entire banking sector.

The central bank does not have the power to remove a director of the state banks and the existing dual regulatory system along with the Bank Companies Act encourages corruption, he said. The banking and financial institutions division under the finance ministry enjoys the power of appointing and removing directors of the state banks, he said.

The government should abolish the dual regulatory system to improve corporate governance in the banking sector, Khaled said.

Private banks' default loans soared 32.58 percent to Tk 38,975 crore in the first six months of the year.

It has become a culture to refrain from repayments in the banking sector, said Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh, a platform of the private banks' managing directors.

Banks should immediately strengthen their monitoring and supervision system to tackle default loans, he said.

“We need more judiciary support to take action against the wilful defaulters. If the defaulters face exemplary punishment, nonperforming loans will decline sharply,” said Rahman, also managing director of Dhaka Bank.

The amount of default loans at two specialised banks—Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank—slightly decreased to Tk 5,241 crore, up from Tk 5,426 crore six months ago.

Foreign banks saw an increase of 5.38 percent in default loans in the first half of the year as their nonperforming loans stood at Tk 2,154 crore as of December last year.

Salehuddin Ahmed, a former BB governor, told The Daily Star that default loans continued to maintain an upward trend mainly in absence of corporate governance in the banking sector.

The influential persons including the politically-connected ones frequently get loans and banks do not follow the credit discipline during disbursing funds to them, he said.

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