Banks in shambles as default loans rise Tk 110b in a year

Relying on public money for business, the country's banks are now providing depositors with lower rates of interest due to the pressure of swelling default loans that have weakened the banking system.

The amount of default loans increased from Tk 110 billion to Tk 622 billion at the end of 2016 from Tk 514 billion the year before, according to Bangladesh Bank.

To make up for the 'losses' caused by non-repayment loans, the banks have reduced the interest rates to around 5 per cent of late from 12-14 per cent five years back. The current interest rate is lower than the rate of inflation at 6.53 per cent.

The central bank has asked the commercial banks to ensure that there is no further slide in interest rates on deposits, many of whom are dependent on this for their living.

"The rising default loans have led to reduction in interest rates on deposits. The banks are trying to make adjustments situation by imposing newer kinds of duties," said Salehuddin Ahmed, a former governor of Bangladesh Bank.

"Also, new clients are being deprived of loans. The default loans have affected the disbursement of fresh loans and collection of deposits. The entire economy is now under serious stress."

The sharp rise in bad loans has been generally attributed to reluctance of large loan recipients to repay the loans.

However, the actual data of default loans could not be available due to the banks' rescheduling of those loans to show better health of the banks and give the directors dividends, sources in the banks said.

Accordingly, BB sources indicate, the amount of default loans as of September 2016 was Tk 657 billion but it was shown to be at Tk Tk 622 billion in December 2016.

Also, an additional amount of loans of Tk 420 billion was written off from the reports of bad debts.

If the written-off loans are counted, the actual amount of default loans would stand at more than Tk 1 trillion.

Vice president of Association of Bankers Bangladesh Syed Mahbubur Rahman looked defensive about the rising default loans. "At the end of the year, all banks had regularised their loans. Recovery has improved as well. That's why the amount of default loans decreased compared to the figure in September 2016."

According to the central bank officials, the rescheduled loans are becoming default loans soon due to culture of non-payment and it has been often impossible to recover loans given to new clients. The loan situation in the private commercial banks has also deteriorated in recent times, they said.

The amount of default loans of 39 private banks increased to Tk 235.7 billion at the end of 2016, from Tk 207.6 billion in 2015. Even default loans of nine foreign banks rose to Tk 24.05 billion in late 2016, which was Tk 18.97 billion a year before.

But, the BB data shows, state-owned banks are more responsible for the swelling of the default loans.

Sonali Bank, Rupali Bank, Janata Bank, Agrani Bank, Basic and Bangladesh Development Bank were burdened with an aggregate amount of default loans at Tk 312.5 billion in December 2016, as against Tk 237.45 billion in 2015.

"There is lack of initiative to recover the huge amount of loans given to the clients. The banks have failed to realise the money from big businesses. This has resulted in a vicious cycle. Unless the situation improves, others will lose interests in paying back loans," argued Salehuddin Ahmed

Source: Prothom Alo