Lax policy turns boon to defaulters

Loan rescheduling by banks rose by a staggering 154 per cent in the October-December quarter of last year mainly due to the Bangladesh Bank easing the pertinent policy.

During that quarter, the country’s banks rescheduled default loans of Tk 17,768 crore, up from Tk 6,976 crore in the same period of 2021, as per the Bangladesh Bank data.

The amount of rescheduled loans was Tk 5,551.3 crore in the July-September quarter of 2022 and Tk 3,706 crore in the previous one.

Also, during the fourth quarter of last year, banks waived interests of Tk 1,898 crore, up from Tk 1,050 crore in the same period of 2021.

Loan rescheduling is part of banks’ frantic efforts to clean up their balance sheets at year end.

Industry insiders said loan rescheduling increased markedly due to the central bank’s relaxed policy.

On the other hand, most banks want to have clean balance sheets in the fourth quarter, which caused loan rescheduling to rise, they added.

In July last year, the banking regulator relaxed the policy on rescheduling default loans, allowing defaulters to repay term loans in a maximum of eight years instead of the previous two.

Also, defaulters were allowed to reschedule their non-performing loans (NPLs) four times in contrast to the previous three.

Meanwhile, the amount of default loans declined in the fourth quarter of 2022 due to the rise in loan rescheduling. NPLs in the country’s banking sector stood at Tk 1,20,656 crore at the end of December last year, down from Tk 1,34,396 crore in September.

Now there is no actual recovery from borrowers, said Mirza Elias Uddin Ahmed, managing director and chief executive officer of Jamuna Bank.

He said some banks are now recovering through loan rescheduling. “Other than that, there is no recovery from borrowers.”

The banker said the amount of bad loans slightly fell in the fourth quarter compared to the previous one due to the increase in loan rescheduling by lenders. A large number of banks rescheduled their bad loans at year end aiming to clean their balance sheets, Elias added.

The senior banker further said there are many uncertainties in the coming days as the country’s economy is facing several difficulties due to the Russia-Ukraine war.

Businessmen are struggling because of the US dollar crisis, he added.

Reducing NPLs to meet IMF conditions

The government is going to take a number of initiatives to reduce the growing NPLs to satisfy the conditions of the International Monetary Fund (IMF).

The IMF recently approved a $4.7 billion loan for Bangladesh to support the country’s economy, but the latter will have to meet several conditions imposed by the global financial institution.

At a recent meeting with the IMF, the government promised that it would reduce the amount of bad loans. It has planned to keep NPLs at 10 per cent at state-run banks and at 5 per cent at private ones.

At present, government banks have 20.28 per cent NPLs while private ones have 5.13 per cent, the Bangladesh Bank data shows.