Industrial NPLs rise for habitual defaulters
Non-performing loans (NPLs) in the industrial sector soared 48.58 percent at the end of last fiscal year as habitual defaulters continued to show reluctance towards repayment of their rescheduled loans.
The country’s business sector also faced sluggishness last fiscal year, putting an adverse impact on industrial default loans, bankers said.
At the end of June, industrial default loans stood at Tk 57,201 crore, up from Tk 38,499 crore a year earlier, according to data from the Bangladesh Bank.
Banks had rescheduled a large amount of default loans in recent years, but they failed to get the desired outcome from the rescheduling programme, said Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh, a forum of private banks’ managing directors.
A good amount of rescheduled loans turned into default in fiscal 2018-19 as habitual defaulters did not use the rescheduling facility accurately, he said.
Banks have rescheduled a record amount of default loans last year, the BB data showed.
In 2018, default loans amounting to Tk 23,210 crore were rescheduled, up 22 percent from a year earlier.
In some cases, some defaulters came to a halt in the second half of last fiscal year after getting information that the central bank would declare a special package to reschedule their default loans in a relaxed manner.
As per the latest policy, the defaulters will be allowed to reschedule their classified loans by making a down payment of only 2 percent instead of the existing 10-50 percent.
A maximum 9 percent interest will be charged on the rescheduled loans while the existing interest rate is 12-16 percent, according to a central bank notice issued on May 16.
This had discouraged the borrowers from repaying their installments on time, which pushed up the default loans in the industrial sector, said Rahman, also the managing director of Dhaka Bank.
Besides, the industrial sector has been facing sluggishness in recent years, which has also impacted the business community’s capacity to repay loans, he said.
Private sector credit growth declined rapidly during the period, in a development that showed the industrial sector has failed to perform well, Rahman said.
Credit growth stood at 10.68 percent in August, down from 14.94 percent from a year earlier.
Of the industrial default loans, term loans accounted for Tk 40,045 crore, up 51 percent year-on-year.
Working capital had Tk 17,156 crore as defaults at the end of June, up 43.20 percent a year earlier.
Shafiqul Alam, former managing director of Jamuna Bank, echoed the same as Rahman, saying the habitual defaulters are mostly responsible for the upward trend of default loans in the industrial sector.
Some good borrowers have also entered the default zone because of sluggishness in the private sector, he said.
Banks should extend their cooperation in time in order to protect businesses from the default zone by way of providing fresh loans, Alam said.
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