Non-performing loan (NPL) write-offs stood at Tk 67,721 crore at the end of June this year, a year-on-year increase of Tk 7,319 crore. This cumulative figure stood at Tk 60,402 crore in June 2022.
When compared to Tk 65,760 crore posted this March, loan write-offs increased by Tk 1,961 crore in June. 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 the non-performing loans (NPLs) in the country’s banking sector hit an all-time high.
Speaking to The Business Post, 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 time, 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 profit. But there are many banks that are facing provisional shortfalls.”
He added that NPL write-offs are an international standard practice, but local banks do not follow this process due to provision shortfall issues.
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 profit for the provision.
“We are writing off loans as per central banks rules and regulations. The balance sheet becomes healthier through write-offs, which is a positive phenomenon.”
He continued, “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.”
Latest data from the Bangladesh Bank reveal that the country’s NPLs stood at Tk 1.56 crore until the end of June of Fy23.
Experts say the writing-off of defaulted loans has declined in recent times because keeping 100 per cent provisioning is very difficult for weak and problematic banks.
A senior central bank official, on condition of anonymity, said, “Banks usually do not want to write-off defaulted loans, but they are struggling to maintain profitability due to the forex crisis, and other issues such as irregularities.
“The loan write-off capacity is not the same for every bank.”
Meanwhile, former governor of Bangladesh Bank Salehuddin Ahmed said, “The banks write off a portion of their NPLs to reduce the amount of default loans on paper. This practice does not bring any benefits for any bank.
“This move also lowers the documented number of loan defaulters, so it appears that their number has gone down. As per rules, banks should try to recollect the loaned money even after writing those off. But in reality, the banks make little effort to do so.”
He added that according to the International Monetary Fund (IMF), the actual number of NPLs in the country is over Tk 2.5 lakh crore.
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.
