87 pc of classified loan became bad and loss
Abu Sazzad: Some 87 percent of classified loans became bad and loss, imposing severe threat for financial stability of the banking sector as well as attaining macro-economic stability of the country.
According to the latest financial stability report of the Bangladesh Bank, all banks disbursed loan amounted worth Tk 10,11,828 crore till December 2019. Out of the total credit, Tk 94,331 crore became defaulted loan, which is 9.32 percent of the total disbursement. On the other hand, experts and banking sources said, now the NPL amount is over Tk 2 lac crore.
However, of the total NPL, 9.1 percent loans are sub-standard (SS), 4.1 percent are doubtful and 86.8 percent are bad and loss loan (BL). In the banking language, when a customer failed to repay his installment (EMI) over a period of one year, such loan turned as bad and loss. Bankers said, the lion share of default loan is holding the ‘BL category’, which is very tough to recover. But, the recoverable amount from the BL is generally adding the profit of a bank, if 100 percent provision keeps against such loans. Currently, the banking sector is facing multifarious challenges such as lowering lending rate to a single digit, bringing down advance-deposit ratio, tackling corruption, ensuring good governance, maintaining adequate liquidity, reviving and retaining depositors’ confidence weakened by scams, frustrating deposit interest rate and rumours of bankruptcy, and recovering gigantic default loans. The recovery of default loans is the biggest challenge for the sector.
Earlier the default loan or Non-Performing Loans (NPLs) was Tk 93,911crore at the end of December 2018. In the end of March 2019, the amount stood at Tk 110,873 crore. In the same year towards the end of June, such amount reached at Tk 112,425 crore, and at the end of September, the default loan stood at Tk 116,288 crore. But the December last, the NPL amount stood at Tk. 94,331 crore.
Commenting on the BL category loans, Global Economist Forum (GEF) President Dr Enayet Karim said, in case of writing off of ‘bad and loss’ accounts, adjusted outstanding amount of BL loan is directly added in profit. The central bank recently relaxes the calculation of default loan. According to the central bank policy, no bank loan will be treated as default loan until September 30, this year if borrowers fail to repay during the period concentrating the COVID-19 pandemic.
Earlier, Bangladesh Bank provided various opportunities including relaxation of default laws, waiver of loan interest policy, provision of low interest loans. As a result, defaulted loans reduced only in paper in December but such amount will increase in the last two quarters, he mentioned. Now, many, stakeholders have lost their financial capability to repay their EMI. “If we calculate the classified loan in the March and June quarter, definitely, the NPL amount will be higher from the paper of Bangladesh Bank”, said Enayet Karim.
Financial irregularities are the major reason behind increasing default loan in the banking sector, he observed. He has underscored the need for ensuring proper credit assessment and recovery measures to reduce the default loan from the banking sector
Dr AB Mirza Azizul Islam, former adviser to the caretaker government told that the huge amount of default loan is a huge threat for attaining the financial stability of the banking sector. Now, the banks are failing to provide adequate financial assistance to the private sector. “Definitely, we have to reduce the default loan for ensuring enough financial assistance to the private sector as well as to attaining a vibrant economy of the country’’, Islam said.
He said, the default loan in December quarter declined mainly for higher rescheduling facilities. Although the central bank injected money to implement the Prime Minister Sheikh Hasina declared stimulus loan packages. Banks are now taking cautious step to provide loans to the affected farmers which is a controversial approach.
Dr Salehuddin Ahmed, former governor of the Bangladesh Bank said, the private sector is the engine of growth. Now, country’s economy is facing the worst ever economic recession concentrating COVID-19 outbreak. To overcome this economic downfall, the higher investment in the private sector is a must. But banks are now failing to supply the necessary loans to the private sector for rapid expansion of the default loan. Apart from that, the higher government borrowing from the banking sector is squeezing the banks private sector credit growth. As a result, banks are forcing to provide lower credit inflow to the private sector, mainly due to higher NPL and government borrowing.