Defaulted debt dwindles despite economic downturn

Amount of defaulted loan decreased due to the coronavirus and the subsequent economic downturn which could have increased the number of defaulters as the deadly international health crisis has bogged down almost all the economic activities.

Due to the pandemic, the recovery of loans has come down. Considering the coronavirus condition, Bangladesh Bank asked the banks not to bracket the recipients of the loan with defaulters till September. Riding on the back of the central bank directives, the amount of defaulted loans scaled down by Tk 2 thousand crore to Tk 92 thousand 510 crore in March. Banks insiders said it is not the real picture of defaulted loans because no one is being dubbed as defaulter at present.

According to BB, till March of the current fiscal year banks have disbursed Tk 10 lakh 24 thousand 498 crore. Of this, Tk 92 thousand 510 crore has defaulted which is 9.03 per cent of the total loan. Till December last year, Tk 94 thousand 331 crore out of the total loan Tk 10 lakh 11 thousand 828 crore was defaulted loan which is 9.32 per cent of the loan disbursed by the banks. In the last three months, the amount of defaulted debt dwindled by Tk 1 thousand 820 crore. According to the central bank data till March last year, out of the total disbursed loan Tk 9 lakh 33 thousand 727 crore, defaulted loan soared by Tk 1 lakh 10 thousand 873 crore, slashing the debt by Tk 18 thousand 363 crore.

Meanwhile, bankers said that the loan recovery of the banks has decreased a lot since the coronavirus infection. During this time, many businesses and manufacturers are unable to sell their products as their income decreases and they could not repay their industry loans. Many private-sector employees have not been able to repay their loan instalments due to declining income. Naturally, defaulted loans are supposed to scale up.

However, in April the central bank said in a circular that even if the loan is not repaid, the customer will not be shown as a new defaulter from January to June. The banks will have to show the status of their loans as they were in December. This grace period has been extended until next September. In other words, even if the customer does not repay any money till next September, the defaulted loans of the banks will not increase.

Citibank Managing Director Masroor Arefin said “All sectors have borne the brunt of the coronavirus. The borrowers are unable to repay instalments of their loans. Big corporate groups, industrialists, SME customers and even the holders of credit cards are not able to repay. As a result, the income of the banks has decreased a lot.”

Sources in the Bangladesh Bank said, most of 42 sectors of the economy have been affected by the coronavirus. Many industries, services and businesses are unable to conduct their economic activities and the post-pandemic situation is likely to be prolonged. Therefore, the central bank has issued directives on repayment and classification of the loans to soften the impact of the disease on the borrowers or investors.

This will not hinder the customers from taking new loans to keep the business afloat. Again, due to the downturn, the huge spike in non-performing loans will not mount the pressure on the banks. If a loan defaults, interest income cannot be shown against that loan rather banks have to have the reverse provision saved. As a result, the income of the banks decreases as well as the profit decreases. As a result, the banks registered in the stock market face various problems in the international market as well as in the domestic market.

hr/wi