Loan write-offs stood at Tk 68,023 crore in the third quarter of this year, a year-on-year increase of Tk 10,048 crore, according to sources in Bangladesh Bank.
This cumulative figure was Tk 57,975 crore in September last year.
Banks usually write off defaulted loans when there is no realistic prospect of recovering the money.
The huge amount of defaulted loans was written off at a time when non-performing loans (NPLs) in the country’s banking sector hit an all-time high of Tk 1,56,039 crore in June this year.
However, NPL slightly decreased to Tk 1,55,397 crore in September this year for providing rescheduling facilities to two big groups in the country.
Talking to The Business Post, Managing Director of United Commercial Bank (UCB) Arif Qadir said, "Usually, banks write off loans when it's impossible to recover the loans. After the loans written-off, the balance sheet becomes healthy, but the claim remains until the loan is recovered."
He also said, "Many banks can't write off loans due to adequate provision. When banks write off loans, they have to put 100 per cent provision from their profits."
Former Managing Director of Bank Asia Arfan Ali said, “Loan write-off is a traditional process which identifies the loss of a bank. Every bank should do write-off timely. On the other hand, many banks don’t want to do write-offs because their shareholders get less profit. Write-off money comes from bank's profits.”
“If the country’s banking sector follows the write-off method properly, the current banking sector would have been better,” he added.
Managing Director and CEO of Dhaka Bank Emranul Haque told The Business Post, “As per the Bangladesh Bank's rules, those loans continue as bad-loss (BL) for three years, the case against this loan in court and 100 per cent provision against this loan- conditions of loan write-off. The benefit of write-off cleans the balance sheet and decreases NPL."
Policy Research Institute (PRI) Executive Director Ahsan H Mansur said, “The system of write-offs in the banking sector is better than rescheduling. Most of the times, the authorities do not want to do write-offs. Instead, they prefer to reschedule loans. Banks have to make a 100 per cent provision against write-offs, which come from the bank's profits. But many banks are facing provisional shortfalls as well.”
He said, “The banks those have good governance always maintain the write-off timely, but many bank owners think about their profits. That’s why they do not write-off timely.”
NPL write-off is an international standard practice, but local banks do not follow this process due to provision shortfall issues, he added.
Brac Bank Managing Director Selim RF Hussain said, “The system of write-off is a good method for the banking sector. It means that the bank retains a certain amount of its profits for the provision.”
“We are writing off loans as per the central bank’s rules and regulations. The balance sheet becomes healthier through write-offs, which is a positive phenomenon.”
“Most of the banks abroad do write-offs instead of restructuring because they have a healthy balance sheet. Several banks cannot do write-offs in our country because they are facing a provision deficit,” he added.
NPL in the banking sector stood at Tk 1,55,397 crore at the end of the July-September period (Q3) of this year, occupying a 9.93 per cent of the banking sector’s outstanding loans of Tk 1,565,195 crore. Bad loans amounted to Tk 1,36,317 crore, which was 87.72 per cent of outstanding classified loans.
The cumulative figure of write-off stood at Tk 65,760 crore in March this year.
As per Bangladesh Bank regulations, banks have to maintain a provision of 0.25 per cent to 5 per cent for unclassified loans. This figure is 20 per cent for the defaulted loans of substandard category, 50 per cent for the doubtful category, and 100 per cent for the bad or loss category.
Banks have to preserve a full amount of cash in provision equaling to NPLs that are treated as written-off loans. The banking regulator introduced the facility in January 2003 to contain the rising defaulted loans.
