Banks’ rescheduled loans more than double in three months

Banks went on a loan rescheduling spree once again in the second quarter of 2021 as the loan rescheduling in June quarter is 116.36 per cent higher than the previous quarter.

Between the months of April and June, default loans amounting to 2,915.22 crore were rescheduled as part of their efforts to clean up their balance sheet amid ballooning default loans.

Of the total amount rescheduled by banks, state-run banks accounted for Tk 457.36 crore, private commercial banks rescheduled Tk 1597.97 crore, foreign banks Tk 23.89 crore while specialized banks Tk 836 crore, according to data from the central bank.

The loan rescheduling amount was at Tk 1,347.36 crore in January and March quarter of this year.

However, the Bank’s efforts did not help reduce the Non-Performing Loans in the banking sector because the NPLs in the country’s banking sector rose by Tk3,899.12 crore in three months to June this year.

The borrowers also are enjoying the loan moratorium facility on bankers-customer relationship.

The central bank on August 27 said that if a borrower pays 25 per cent of his or her installments of the current year’s loans, the loans would not default until December 30, this year.

“It is nothing but a part of the defaulted loans recovery”, said Jamuna Bank managing director Mirza Ilias Uddin Ahmed.

He said, “As the bank closing is also coming up in a few months, the banks are also trying to recover their money from the defaulters.”

Besides, we are providing facilities to the businessmen in accordance with the rules of the Bangladesh Bank, he added.

Defaulted loans rescheduling dropped to Tk 13,458 crore in 2020 than previous year due to the BB’s moratorium facility on loan installments.

Borrowers enjoyed a moratorium facility on loan servicing installments throughout the last year but now they are enjoying the same facility on condition.

While talking to The Business Post, Mutual Trust Bank managing director Syed Mahbubur Rahman said banks are rescheduling their defaulted loans as part of its move to recover the bad loans as the future is very uncertain due to the current pandemic.

“Some banks reschedule their bad loans depending on their cash flow,” he added.

“Now the borrowers are also interested to reschedule their bad loans by paying 20 to 25 per cent as down payment because the deferral facility on loan servicing instalments is fixed for a period,” said Syed Mahbubur Rahman, also the former chairman of the Association of Bankers Bangladesh.

Rescheduling of bad loans helps the banks clean the book but in the long run, it increases the amount of the defaulted loans, said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.

Terming such practice a short-time measure, he also said that it is not a very good practice at all.
“ Banks are very interested in rescheduling their defaulted loans for making their profits because they are required to keep provisioning against the rescheduled loans,” said Mansur.

The lenders can declare dividends by regularising their bad loans, said Mansur, also the chairman of BRAC Bank.

Businessmen can come out from the default zone by rescheduling their bad loans against only 4 or 5 per cent down payment.

“A number of unethical borrowers take the rescheduled facility again and again and they misuse the facility to take more loans,” said the economist.

Bad loans in the banking sector rose to Tk116,288 crore in September 2019, which prompted the central bank to come up with the relaxed rescheduling policy as per the government instruction.

Under the special policy, defaulters got the opportunity to regularise their bad loans for 10 years, including one year’s grace period, at a nine per cent interest rate by making just a two per cent down payment.

As a result, a record Tk50,186 crore of bad loans were rescheduled in 2019.