Defaulted loans in the banking sector went down slightly in the third quarter this year thanks to the moratorium on bank loan payments provided by the central bank.
Non-performing loans (NPLs) stood at Tk 94,440 crore as of September, down 1.74 per cent from three months earlier and 18.73 per cent year-on-year, data from the Bangladesh Bank showed.
But experts and bankers termed the reduction in the NPLs “meaningless” as it occurred due to the central bank’s instruction to lenders not to classify any loans until December this year.
The moratorium on bank loan payments was introduced in the middle of March after the coronavirus pandemic arrived on the shores of the country and started hammering economic activities.
The support was initially expected to last until the end of June. Later it was extended up to December as the health crisis showed no signs of abating.
The ratio was 9.16 per cent in June this year and 11.99 per cent in September last year.
The ratio of the NPLs declined as banks are disbursing loans by using the stimulus packages initiated both by the government and the central bank.
“Banks are now able to recover loans to some extent despite the economic hardship, helping bring down their defaulted loans slightly,” said MA Halim Chowdhury, managing director of Pubali Bank.
The actual picture of defaulted loans would be apparent in the middle of the next year when the moratorium facility will not be available, he said.
The NPLs declined massively in the final quarter of last year on the back of another regulatory forbearance of the central bank.
For instance, defaulted loans stood at Tk 116,288 crore as of September last year, but the figure nosedived to Tk 94,331 crore at the end of the year.
The central bank had allowed banks to reschedule their defaulted loans by accepting a down payment of only 2 per cent of the outstanding amount instead of the existing 20-50 per cent.
Banks rescheduled defaulted loans of more than Tk 50,000 crore under the relaxed facility.
The ongoing moratorium facility has had a big impact on the reduction of the NPLs this year.
“The decrease in the NPLs has not brought any meaningful change to the banking sector as the toxic loans will go up at a faster pace once the moratorium is lifted,” said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.
Banks have not stopped writing off their bad loans, bringing a positive impact on the outstanding figure of the NPLs for the time being, he said.
There is no scope to be complacent as the actual challenge awaits lenders in the days to come, he said.
Banks should adopt a cautious stance while giving out new loans given the ongoing business slowdown, such that they can protect themselves from the pressure of delinquent loans, he said.
BB data showed more than 50 per cent of the defaulted loans were with the nine state-run banks.
Defaulted loans in the state-run banks, however, decreased 0.22 per cent to Tk 47,355.07 crore as of September from three months ago, the central bank data showed.
Forty-one private banks held defaulted loans of Tk 45,037 crore, down 3.33 per cent from a quarter earlier.
The NPLs in nine foreign banks decreased to Tk 2,049 crore in contrast to Tk 2,059 crore a quarter ago.
“The downward trend of defaulted loans is a good sign during times of crisis. We have to try to keep up the momentum,” said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.
A good number of clients have rescheduled and restructured their defaulted loans in recent periods, which helped curb delinquent loans, he said.
“But, we don’t know what will happen post-moratorium,” said Rahman, also a former chairman of the Association of Bankers, Bangladesh, a forum of managing directors of banks.
“Banks have to start full-fledged preparation to tackle the situation to arrest the possible jump in the toxic loans,” he said.
The NPLs may decrease further this quarter as the moratorium is still available, he said.
Salehuddin Ahmed, a former governor of the central bank, said the central bank should strengthen monitoring so that banks carried out due diligence while lending.
“This will help avert any potential crisis in the post-moratorium period.”