Banking sector in 2018: Default loans reach Tk100, 000 crore for first time

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Bangladesh Bank building at Motijheel Mehedi Hasan/ Dhaka Tribune

The culture of impunity, political interference in approving loans and professional ineptness of bankers to deal with pressing issues have aggravated the already battered banking industry, economists and senior bankers remarked

Default loans was the most talked-about issue in the country’s banking sector in 2018.

It is slated to reach new heights as default loans are nearly hitting Tk100,000crore for the first time in the country’s 48-year history.

The non-performing loans (NPLs) in the sector had witnessed a whopping 300% riseby September 2018, due to poor governance that plagued the financial sector in absence of a strong central bank, as well as lack of political will.

The culture of impunity, political interference in approving loans and professional ineptness of bankers to deal with pressing issues have aggravated the already battered banking industry, economists and senior bankers remarked.

According to recent Bangladesh Bank data, the amount of NPLsstood at Tk99,370crore, or 11.45% of disbursed loans as of September, 2018.

The banks’ NPLs rose by a staggering Tk10,030 crore in a period of three months from July to September this year, increasing the amount of stress loans in the banking sector to Tk99,370 crore.

The amount of bad loanswas 11.45% of total disbursed loans in the given months. In June, total bad loans in the banking system was Tk89,340crore, or 10.41% of total disbursed loans.

Statistics also show that NPLs rose by Tk19,063.71 crore in the last one year, increasing the amount of stress loans in the banking sector to Tk99,370 crore.

In 2009, total NPLs in the country’s banking sector was Tk 22,481 crore, which stood at Tk99,370.92crore as of September 2018, up by Tk76,889 crore, or 300% .

The amount of bad loans has been increasing every year. In 2010, it increased to Tk22,563crore, which was 7.27% of the total disbursed loans. In 2011, bad loans increased to Tk25,073crore, and stood at Tk42,725 crore in 2012, dropping slightly to Tk40,583 crore in 2013, butcontinued to grow again until 2014.

In 2014, the default loan amount increased to Tk57,290 crore, or 11.60% of the total disbursed loans. In 2015, bad loans again droped slightly to Tk54,708crore, but increased to Tk65,731 crore in 2016, grew rapidly to Tk80,307.21crore in 2017,and finally, reached Tk99,370.92 crore in 2018.

Taking to the Dhaka Tribune, experts blamed the lack of good governance, corruption, political interference in approving loans, and a culture of impunity for the endless journey of NPLs in the sector.

“In the last decade, the country did not encounter any disaster that could have prevented businessmen from repaying their loans. The economic growth rate has increased and there has been macroeconomic stability in the country,” ZahidHussain, lead economist of the World Bank, Bangladesh Office, told the Dhaka Tribune.

But the number of wilful defaulters has increased, the economist added.

He said the banks cannot avoid blame and responsibility for the soaring default loans, as they are approving loans without proper diligence orconsidering the repayment capacity of borrowers.

Executive Director of Centre for Policy Dialogue (CPD), Dr FahmidaKhatun, said two amendments of a dubious nature were made to the Banking Company Act this yearthat undermined the cause of good governance.

“The tenure of banks’ board of directors increased from six years to nine years, while up to four family members were allowed to be on the board, instead of two,” she said.

To increase the number of judges dealing with Money Loan Court Act 2003 and Bankruptcy Act 1997, as well as to ensure speedy disposal of loan default cases and reduce backlogs,immediate action must be taken against the banks that are performing poorly and are ill-prepared for Basel III, she also added.

Basel III is an internationally agreed set of measures developed by the Basel Committee on Banking Supervision to strengthen  regulation, supervision and risk management of banks.

Source: Dhaka Tribune.

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