Banks focus more on loan restructuring than cash recovery

Loan rescheduling and restructuring were the banks' most preferred mode for recovering loans last year, found a recent survey.

All banks had resorted to restructuring to recover their bad loans last year, while 93.10 percent employed rescheduling, found the survey styled 'Credit Operation of Banks' by the Bangladesh Institute of Bank Management (BIBM).

The disclosure casts suspicion on banks' recent proclamations of intensified recovery efforts to bring down the sector's non-performing loans.

After grazing Tk 1 lakh crore in the third quarter of 2018, the banking sector's total NPLs stood at Tk 93,370 crore at the year's end, which is 10.30 percent of the total outstanding loans, according to data from the Bangladesh Bank.

Arbitration is getting popular in recovering loans, with 62.50 percent taking up the tool last year, up from 41.38 percent in the previous year, according to the survey.

Lending to a single client by multiple banks has become an acute problem to the sector's credit management.

Some 90.63 percent of the banks faced the problem in the last year, up from 86.21 percent a year earlier. The survey identified interest waiver and urban concentration as the other problems.

Some 72 percent of the banks faced the problem of interest waiver last year, while 62.50 percent perceived urban concentration as a hurdle for credit operation.

Another problem identified by the survey is that banks are interested in only lending to a select group of clients with little interest in branching out. In 2018, only 20 percent of the banks disbursed loans to new sectors.

The disparity between urban and rural credit is still high as banks lack in confidence in lending large sums to rural areas. As of September last year, the share of credit in urban area was 89.66 percent, according to the survey.

The lower credit flow to rural areas reflects the ignorance of inclusive banking, said Barkat-e-Khuda, chair professor of BIBM. Policymakers should give their attention in improving the share of credit to the rural area, he said.

Excess financing is the main reason for high default loan ratio, said Obayed Ullah Al Masud, managing director of Sonali bank.

Anonymous loan is rising at an alarming rate and it will be a threat for the banking industry in future, he said. Formation of a taskforce is necessary to recover loans, said Helal Ahmed Chowdhury, supernumerary professor of BIBM.

Prashanta Kumar Banerjee, professor and director of BIBM, presented the findings of the survey at an event yesterday at the BIBM auditorium in the city.