Home ›› 16 Mar 2022 ›› Front
The percentage of bad loans – out of total classified loans in the country’s banking sector – stood at 88 per cent or Tk 91,059 crore until December 31 last year, shows data from the Bangladesh Bank.
A loan turns bad if debt-servicing does not take place for more than one year, and it is currently the worst possible category of classified or non-performing loans. The recovery of such debts is very difficult and highly unlikely, industry insiders say.
On the issue, Bangladesh Bank’s former governor Salehuddin Ahmed said, “The government could have built at least three Padma bridges with the amount of money currently stuck in bad debts.
“Most of the classified loans in the country’s banking sector are now turning into bad or loss loans due to a multitude of factors, such as a lack of good governance, regulator’s lack of independence, political influence, nepotism, lack of efficiency and legal complications.”
On the other hand, South Bangla Agriculture and Commerce Bank’s Managing Director Mosleh Uddin Ahmed said the amount of bad loans shot up last year because of the Covid-19 pandemic shock.
94% bad debt in SCBs’ NPLs
According to the central bank data, six state-owned commercial (SCBs) and three specialised banks hold Tk 45,646 crore in bad loans, which is 50 per cent of total bad debts in the country’s entire banking sector.
The SCBs’ total amount of non-performing loans was Tk 44,977 crore until December last year, and of this figure, Tk 42,143 crore or 94 per cent was classified as bad loans.
Among the government banks, and also in the entire banking sector, scam-hit Janata Bank held the highest amount of bad debt reaching Tk 11,698 crore, which was 96 per cent of its total NPL in that period.
Sonali Bank – also hit by scam – was the second highest, holding Tk 10,455 crore in bad loans, which was 93 per cent of its total NPLs.
Pvt banks nearly at govt banks’ level
As the number of private banks increased over the years, the amount of bad loans among them shot up as well, nearly hitting the level displayed by the nine state-owned banks.
Private sector banks held Tk 43,164 crore in bad loans at the end of last year, which was 84 per cent of the total classified loans.
Among these banks, the National Bank (NBL) was holding the highest Tk 5,618 crore in bad loans, which was 94 per cent of its total classified loans. AB Bank was at the second position holding Tk 3,658 crore in bad loans, which was 91 per cent of its total NPLs.
Padma Bank is in the worst condition among the fourth generation banks. The amount of bad loans in that bank increased from Tk 96 crore in the last six years to Tk 3,534 crore.
Bad loans in foreign banks
The amount of bad loans in nine foreign banks in the country stood at Tk 2,248 crore at the end last year, which was only 8 per cent of its total NPLs.
Among the foreign banks, the National Bank of Pakistan is in the worst position with a bad debt of Tk 1,372 crore. The entire disbursed loan of the bank is now in bad debt.
Classification, recovery process
According to the loan classification, if any installment of a loan becomes due for three to nine months, it will be classified as sub-standard.
If an installment becomes due for more than nine months and less or equal to 12 months, it will be classified as doubtful. If the period goes above 12 months, the loan becomes a bad or loss loan.
In contrast to these three types of classification, the bank has to keep provision at the rate of 20 per cent, 50 per cent and 100 per cent respectively against each category. Bad loans have caused some banks to suffer from capital shortfall, and disrupted the disbursement of new loans as well.
Classified loans are rescheduled according to the central banks’ reschedule policy. However, if a loan remains in a bad condition for three consecutive years, the bank can write off that particular loan.
Writing off any loan – which means removing it from the main balance sheet – can only be done after a bank has attempted to recover the money through legal action.
So, a bank must file a case in the money loan court before writing off a bad loan, but a case can only be filed if the debt amount is above Tk 200,000.
What do experts say?
Mosleh Uddin Ahmed, managing director of South Bangla Agriculture and Commerce Bank Limited (SBAC), told The Business Post, “Despite deferral facility, the amount of bad or defaulted loans shot up last year due to the Covid’s impacts on businesses.
“A significant number of the private banks are listed, so there are no problems with transparency. The amount of bad loans has increased due to the ongoing situation.”
Voicing a different opinion, Bangladesh Bank’s former governor Dr Salehuddin Ahmed said, “The amount of bad loans may have increased by 5 to 10 per cent due to the Covid’s impacts, but it has been increasing in private banks in a similar manner to state-owned banks for some time.
“The key reason behind this situation is the lack of good governance and mismanagement. I will hold the banks’ boards responsible for this.”
He further said, “Sometimes the banks disburse loans without proper scrutiny, and sometimes they hand out loans after facing pressure. A lack of proper monitoring, and absence of a firm stance from the central bank are also responsible for causing bad loans to go up.
“Owners of the private banks are big business people, and they keep in close touch with the government. So, the government must show political will to reduce the burden of bad loans. The central bank cannot achieve this feat alone.”
Salehuddin added that a decrease in bad debts will help banks recover from capital shortfall, and boost disbursement of loans, banks’ income and people’s trust in this sector.
