Sunday 25, September 2022

Defaulted loan increases by Tk 26,000cr in FY22

News Desk: The volume of defaulted loans in the financial sector soared by Tk 26,000 crore in the financial year 2021–22 despite a relaxed loan repayment opportunity.

The defaulted loans soared to settle at Tk 1,25,257 crore in FY22 against Tk 99,205 crore in FY21, according to the Bangladesh Bank.

The defaulted loans jumped by Tk 21,984 crore from Tk 1,03,273 crore in Decemebr 2021 in six months.

At the end of March, the defaulted loans stood at Tk 1,13,440 crore, which saw an increase of Tk 11,817 crore to stand at Tk Tk 1,25,257 crore in June.

Bankers said that the loan moratorium facility made the borrowers unwilling to repay the loans and the consequences would multiply in the coming days.

The total loan disbursement was Tk 13,98,592 crore at the end of June while 8.96 per cent or Tk 1,25,257 crore of the total loan disbursed became classified.

Former lead economist of the World Bank Dhaka Office Zahid Hussain told on Thursday that the rising defaulted loans would have myriad adverse consequences on the economy as it could intensify the dollar crisis if the loans crossed the border.

The defaulted loans may also intensify the inflationary pressure amid the worsening dollar crisis and decreasing money supply, he said.

A majority of the defaulters are willful offender as the economic growth does not support the claims that businesses were struggling under losses, he said.

Selim Raihan, executive director of the South Asian Network on Economic Modeling said that the defaulted loans are at the centre of the banking sector crisis.

Most of these loans are willfully defaulted loans, backed by political, financial and lobbying power of the borrowers, he said.

‘Though the government has repeatedly said that the amount of defaulted loans would decline, we are yet to see any improvement in this regard,’ Selim said.

If the government fails to rein in the defaulted loan surge soon, the current economic crisis would drag on, he observed.

The current demand for US dollars in the kerb market could be for money laundering, Selim said.

The government must take disciplinary actions to streamline the banking sector for the sake of the economy, Selim said.

Of the total volume, the amount defaulted in private commercial banks went up to Tk 62,678 crore at the end of June from Tk 57,803.68 crore three months ago.

The volume of such loans in state-owned commercial banks rose to Tk Tk 55,429 crore in June from Tk 48,737.03 crore in March.

The amount defaulted in the state-owned scheduled banks is currently 44 per cent of the total classified loans and in the private commercial banks 50 per cent.

The amounts in foreign commercial banks and specialised banks stand at Tk 957 crore and Tk 4,194 crore respectively.

The borrowers enjoyed a relaxed repayment scope for 2020 and 2021, including a one-year loan moratorium, following the Covid outbreak.

The amount of defaulted loans was Tk 88,283 crore at the end of December 2020, though banks were barred from downgrading loans against repayment of only 15 per cent of the overdue loans.

Beside the regulatory forbearance, the deterioration in the country’s economic situation also affected the repayment capacity of some borrowers, thereby increasing the magnitude of defaulted loans due to the combination of the two factors.

The defaulted loans amount would increase further due to the existing regulatory approach and the tendency of borrowers to avert repayments, bankers said.

The ratio of the defaulted loans in the banking sector also rose to 8.96 per cent at the end of June 2022 from 8.53 per cent three months ago.

If the written-off loans, the rescheduled loans and the loans remaining unrecovered due to court proceedings are taken into account, the amount would be around 20 per cent, financial analysts said.

Many apprehend that most of these loans cannot be recovered finally, they said.

Instead of facilitating the defaulting banks and borrowers, the regulator must be stringent or else regulations would not be obeyed by the borrowers and banks, they said.

Prior to the latest increase in the volume of defaulted loans, the amount of such loans in the banking sector dropped by Tk 6,048 crore in 2020 from Tk 94,331 crore at the end of December 2019 when all the borrowers received the moratorium facility after reaching an all-time high of 11.99 per cent or Tk 1,16,288 crore of outstanding loans at the end of September 2019.

The amount dropped by Tk 28,005 crore between September 2019 and December 2020 mainly because of the regulatory forbearance, including a one-time exit facility and the loan rescheduling scope with just 2 per cent down payment.

The Federation of Bangladesh Chambers of Commerce and Industry on May 31 requested the Bangladesh Bank to extend the loan moratorium facility till December 31, 2022.

After the request, the central bank on June 23 gave borrowers time till December 2022 to avoid their loans being classified as defaulted by paying 25-75 per cent of their installments for 2022.

The borrowers did not have to pay back any amount of their loans in 2020 due to the Covid pandemic.

But in 2021, they were asked to repay only 15 per cent of their loans to avoid becoming defaulters.


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