New govt to undertake a holistic approach to reduce NPL, hopes economic experts
Lenin Rahman: The amount of write-off loans of the banking sector has increased significantly in the last year due to increase the bad and loss amount of loans, capital and provision shortfall. According to the banking sources, the amount of loans written off by banks stood over Tk 50,000 crore in the last year as the lenders used a central bank policy to clean up their books.
According to the latest data of Bangladesh Bank, such bad debt stood at Tk 49,785 as on September last year. Of the total amount, the state-owned bank’s write-off loan amounting to Tk 20,000 crore.
However, the Sonali Bank is holding the highest write-off amounting at Tk 8,429 crore, followed by Agrani Bank for Tk 5,440 crore, Janata Bank for Tk 4,985 crore and Rupali Bank for Tk 1,019 crore. Out of these banks, the remaining Tk 29,872 crore was write-off by all private and foreign banks.
Managing director of a private commercial bank told on the condition of anonymity that the process to write off was not transparent as it was an attempt to prevent people from knowing the actual figure of default loans. As per BB rules, loans are written off after making adequate provisions to take advantage of tax benefits. But banks are obligated to continue their recovery efforts.
Most written-off loans are like uncollectible. The recovery process of such loan is highly difficult. So, the banks should prevent the corruption so that the vested quarter will not take loans through the unethical process. For write-offs, banks have to file law suits with the money loan court (Artha Rin Adalat) against the defaulters and keep 100 percent provisioning. Actually, the banks have been forced to write-off the loans to conceal the corruption. Banks write -off bad debt is declared non collectable (such as a loan on a defunct business, or a credit card due that is in default), removing it from their balance sheets.
Talking to the Daily Industry, Dr. Salehuddin Ahmed, former governor of Bangladesh Bank told that banks are forcing to turn the bad debt in write-off for showing their clean image to the customers.
“If the defaulter would pay their loan installment regularly, bank authorities need not to make write-off”, Ahmed said.
The process to write off was not transparent as it was an attempt to prevent people from knowing the actual figure of default loans, he claimed. Banks write off loans to conceal corruption.
The central bank introduced the policy to show a decreased amount of default loans on banks’ balance sheets with a view to presenting a positive picture of the country’s financial sector to the international community, he informed.
“Write-off loans are like uncollectible loans and the recovery process is very difficult, so, banks should prevent corruption so that the vested quarter can’t take loans through unethical process”, Ahmed added.
Saleh Uddin Ahmed has underscored the need for undertaking prompt action to recover the written-off loans by settling the cases filed by banks with money loan courts.
However, in this regard, a senior official of the concerned division of Sonali Bank said that his bank is maintaining write-off loan since 2003 as per the instruction of the central bank.
According to Bangladesh Bank data, the amount of default loan was Tk 56,720 crore in 2013 but the amount stood at Tk 99,370 core in the just concluded year.
On the other hand, banking sources said that the amount of default loan is over Tk 1.30 lac crore which is also stated to the outgoing finance minister AMA Muhith.
Meanwhile, some twelve banks altogether faced provisioning shortfall of Tk 10,834 which is creating a risk of moral hazard for the entire banking sector. The banks are: Sonali, Agrani, Rupali, BASIC, AB, Bangladesh Commerce, Mutual Trust, National, Premier, Social Islami, Shahjalal Islami and Standard.
As per Bangladesh Bank regulations, banks have to keep 0.50 percent to 5 percent provisioning against regular loans, 20 percent against classified loans of substandard category, 50 percent against classified loans of doubtful category, and 100 percent against classified loans of bad or loss category.
The central bank should take prompt action and compel the banks to keep the required provisioning at the earliest. “Otherwise, the tendency will infect other lenders, experts opined.
Professor Farid Uddin Ahmed, Vice -Chancellor of Shahjalal University of Science & Technology (SUST) yesterday told that the culture of write-off loans are encouraging a group of vested quarters to take loan large-scale loans from the banking sector.
After sanctioning the larger scale loans, such vested groups are failing to pay their loan installment resulting the rising of NPL in the banking sector.
As per central bank’s policy, the banks are forcing to make write-off loans to hide the NPL amount, he observed.
Ahmed has underscored the need for strengthening credit supervision of banks so that the allocated amount are utilizing in the right purposes.
Bank are disbursing loan to purchase capital machineries but the amount is utilizing another purposes which is completely unethical, he claimed.
Some dishonest bank officials are related with the willful defaulters those are foiling the financial soundness of the banking sector and country’s economy, Farid Uddin Ahmed also added.
The collateral of the large loans are not adequate, and for this, when a bank goes to auction, it fails to recover the allocated or outstanding amount, he said adding banks are able to collect maximum 10 percent of the recovery from the collateral.
However, he urged the new government to undertake a holistic approach to reduce the NPL and write-off loans to save the banking sector from the vested groups as they are holding the lion share of such bad debts.
He hoped the new finance minister — to find out the effective solution to prevent NPL and write-off loans with a view to securing the public money of the country.