Nonperforming loans on the rise

Nonperforming loans in the banking sector are on the rise this year on the back of increasing tendency of habitual defaulters to file writ petitions, which stall the loan recovery process.

At the end of last year, the sector's NPL ratio stood at 9.23 percent, which crept up to 10.53 percent at the end of March.

The ratio dipped to 10.13 percent over the following three months, only for it to shoot up to 10.67 percent at the end of September.

BB data shows the defaulted loans increased by Tk 6,159 crore to Tk 80,307 crore in September compared to the figure a quarter ago.

Some wilful defaulters continue to file writ petitions with the High Court to show their loans as unclassified, said Kazi Masihur Rahman, managing director of Mercantile Bank.

The habitual defaulters take fresh loans from banks soon after filing the writs as these give them a clean slate. The Credit Information Bureau reports they present then are flawless.

“But they do not pay back the loans,” he said, while urging the central bank to take steps to rein in this tendency.

Banks are yet to take the requisite tough administrative and legal actions against habitual defaulters, said Salehuddin Ahmed, a former governor of Bangladesh Bank.

“This has encouraged others to run their business without paying back bank loans.”

The default loan culture is becoming widespread in the country's financial sector due to a lack of strong corporate governance.

But some are becoming defaulters for legitimate reasons, Ahmed said.“The private sector is yet to get relief from sluggishness as the export earnings did not increase as expected in recent months, while the inward remittance has registered only moderate growth.”

Some businesspeople defaulted on loans in absence of a friendly business environment, he added. Banks should deal with the habitual defaulters strictly to recover the classified loans, said Md Arfan Ali, managing director of Bank Asia.