Loan default up

THE Bangladesh Bank statistics on bank lending during January to March showed a five percent increase in defaulted loans amounting to Tk 1,103 crore from the level recorded in December last year. This is not worrying, but given the decline of default culture in the recent years, even a small sign of default cannot fail to draw our attention.
It is somewhat understandable that due to the knock-on effect of the global economic meltdown, businessmen are having to defer loan repayment and the banks are also being considerate to them on that count. But what is rather difficult to appreciate is why the loan recovery drive should slacken after December and not be a persistent year-round exercise as a matter of practice.
Where we need to be particularly cautious is that a proportion of risky lending has led to a rise in the quantum of default. Many banks have overshot the lending cap of 80 percent of their deposits, several of them going above 90 percent, and some reportedly even crossing the 100 percent mark. Lending in the unproductive sector has apparently increased. Consumer credit in all its variety has been on the rise, soaring from 31 percent to 140 percent, according to a recent study of the central bank.
One important criterion that is applied to gauge the extent of loan default is by linking it to outstanding loans. Here it appears that defaulted loans of state-owned banks, private commercial banks, foreign commercial banks and specialised banks stood at 26.49 percent, 4.72 percent, 1.91 percent and 25.94 percent of their outstanding loans, respectively, on March 31 of the ongoing fiscal year. These inputs will be hopefully updated by a thorough analysis of statistics made available till May so as to enable the banks to adopt suitable lending policies in order to rhyme in with the objectives of a new budget.