Recovery slow for feeble efforts

Banks have been able to recover less than a fourth of their written off loans in the last 15 years because of half-hearted effort on their part.

Introduced in January 2003 with a view to putting the brakes on rising default loans, the Bangladesh Bank's write-off policy has allowed banks to clean up their balance sheets artificially.

But the initiative failed to bring any good for banks due to their lacklustre efforts to recover non-performing loans from defaulters, said Salehuddin Ahmed, a former BB governor.

Between January 2003 and September 2018, banks wrote off Tk 49,745 crore. As of September, Tk 37,866 crore, which is 76 percent of the sum, remained outstanding, according to data from the central bank.

Default and written-off loans together stood at Tk 137,236 crore as of September.    

The increase in both default and written-off loans is interrelated as the worst categories of debts mainly stem from banks' inability to recover funds from defaulters, Ahmed said.

“The upward trend of written-off loans has created a severe situation in the financial sector as there is no visible effort to step up the recovery of troubled loans. On the contrary, the worst debts continue to mount,” he said.

Banks' total written-off loans rose 5.23 percent year-on-year to Tk 37,866 crore at the end of September. Of the sum, state banks have written off Tk 18,111 crore and private banks Tk 18,468 crore.

The written-off loans in the two state-run specialised banks -- Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank -- were Tk 344 crore. Foreign banks wrote off Tk 944 crore.

Lenders are compelled to write off bad loans when they are left with no option of recovering the NPL, said Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh, a platform of banks' managing directors.

“It is very tough to recover written-off loans as borrowers didn't offer adequate collateral in most of the cases while taking the loans.”

Lenders should verify the business profile and cash flow of companies before sanctioning loans in order to avert such crisis, said Rahman, also the managing director of Dhaka Bank.    

Banks try to show a clean balance sheet by way of writing off loans, but such method does not give any good impression to the banking sector, said Khondkar Ibrahim Khaled, a former BB deputy governor.

High volume of default loans compels lenders to pay excessive confirmation charge to third parties while opening letters of credit in favour of foreign corresponding banks, he said. To bypass the high charges, banks make an effort to cover up their actual ratio of default loans.

Khaled went on to urge the government to set up at least two to three dedicated benches in the High Court to settle the cases pertaining to the written-off loans as defaulters frequently use loopholes in the laws to not return funds to banks.

Many banks even do not have the ability to write off loans as lenders have to keep 100 percent provisioning before the implementation of the tool, said M Kamal Hossain, managing director of Southeast Bank. “My bank wrote off Tk 252 crore last year based on our good profit. This has helped clean the balance sheet.”

Branches usually feel complacent when any amount of loan is written-off from their credit books as they feel they have got rid of the responsibility of realising the money. “Such an attitude is not conducive to getting back money from defaulters,” Hossain added.