Private banks' bad loans swell on reckless lenders

Private commercial banks' default loans swelled by about 24 percent in the third quarter of the year from the preceding three months due to governance problems in some of them.

On September 30, the private banks' bad loans stood at Tk 27,688 crore or 5.9 percent of their outstanding loans, which was Tk 22,350 crore or 5.67 percent on June 30, according to central bank statistics. However, most of the private banks' default loan scenario is good: it is below 6 percent.

In other words, of the 39 private banks, the default loans of only a few of them are above the average 6 percent-mark, and Bangladesh Bank has closely been monitoring the governance problem prevailing in them and corrective measures are being taken accordingly.

For instance, 2-3 of the new banks that got approval in 2013 have high default loans.

BB Governor Fazle Kabir held a meeting with the nine new banks on November 21 and cautioned them over aggressive lending and rising nonperforming loans.

The new banks were asked to strictly follow the risk management guideline to improve their performance.

At the end of the third quarter, the total default loans in the banking system stood at Tk 65,731 crore or 10.37 percent, which was Tk 52,518 crore, or 9.67 percent, three months earlier.

The BB has been trying for several years to contain the default loans to below 10 percent of outstanding loans, but it is rising every quarter in 2016. Bad loans increased substantially in the third quarter, a chunk of which came from the private banks. The private banks' default loans may soar for several reasons, with one of them being aggressive banking, said Nurul Amin, managing director of Meghna Bank.

“If loans are given without proper due diligence, they will turn bad. If supervision and monitoring are not done properly, the loan may turn into defaults.”

But many loans may turn bad for genuine reasons too, he said, while expressing hope that the figures will improve in December.

To curtail default loans, continuous monitoring has to be ensured, according to Amin.