Bad loans write off increased 18 times

Amount of write off loans in 2023 was Tk 67,440 cr

Zarif Mahmud : Due to lack of good governance in the banking sector, political influence, multi-faceted irregularities-corruption and forgery-debt collection is continuously decreasing. Due to non-payment of loans within the stipulated time, the defaulted loans are increasing. Even among defaulters there is less tendency to recover or renew.
As a result, after a loan default for two consecutive years, it turns into a bad loan. Against this hundred percent provision has to be kept. On the one hand, double the money of the bank is stuck, on the other hand, the balance sheet of the bank is getting bigger and spreading disrepute due to defaulted loans.
As a result, the level of risk in the banking sector in the country is increasing in a big way. New banks are under the burden of defaulted loans. In view of this, banks are widely writing off defaulted loans and keeping them separate from the original account to reduce the risk. As a result, defaulted loans are decreasing due to coverage. In this process, banks have written off defaulted loans of Tk 67,440 crore in the last 20 years. Deposition increased more than 18 times.
It can be seen from the report of the central bank, that due to the excessive increase in defaulted loans in the banking sector, the central bank has taken various initiatives to reduce it. But it was not beneficial. In 1998, 40.70 percent of the total loans of the banking sector were non-performing loans.
To reduce this rate, defaulted loans are renewed at a special discount and loan disbursement is increased. Through this, in 2003, it was possible to reduce the rate of defaulted loans to 22.10 percent. It was not possible to reduce it more. At that time the total defaulted debt was Tk 20 thousand crores.
A policy was made in 2003 to reduce defaulted loans by declassifying these loans (keeping them separate from the bank’s main account). According to that policy, defaulted loans can be waived by keeping 100% provision. Taking this opportunity, banks that had more provisions started writing off defaulted loans. In the first year i.e. till June 2003, the banks wrote off the loan from Tk 3 thousand 730 crores.
Since then, the amount of depreciation has increased. Over the past eight years, the amount of depredations has been increasing exponentially. Out of this, in 2016, the status of appropriation increased to Tk 44,690 crores. In 2017, it further increased to Tk 48,190 crores. In 2018, it increased to Tk 52,880 crores. In 2019, a comprehensive policy was made to waive off defaulted loans. Then the speed of degradation is slightly reduced in light of this. Because it says that a bad debt can be written off if it remains in default for three consecutive years.
Earlier it could have been dismissed as a recession for two years. A case must be filed in court against the defaulter before forfeiture. Apart from this, due to recession in banks, the tendency to keep provisions also decreases. As a result, degradation is also reduced.
In 2019, the level of appropriation increased to Tk 55,430 crores. In 2020, it increased slightly toTk 56,850 crores. In 2021, the depreciation increased to Tk60,500 crores. In 2022 it further increased to Tk60,400 crores and by June 2023 it further increased to Tk67,440 crores. From 2003 to June of last year, foreclosures increased more than 18 times.
The central bank pressured the banks to recover from the defaulted loans. Because even if the loans are written off, they are still marked as defaults. That is why the central bank takes initiatives to regularize or collect those loans to reduce the default. As part of this, some banks including Pubali Bank have taken steps to recover defaulted loans by appointing private agents. Some debts have also been recovered through this. As a result, the net balance of foreclosed loans has come down to Tk 51,560 crore till June last year. Tk15,880 crore has been recovered or renewed from the loan foreclosed during the period under discussion. Which is 2.35 percent of the total depreciation.
In the last 20 years, government banks have written off Tk25,220 crores, now the status is Tk18,270 crores. Renewed or recoveredTk 610 crore has been written off by specialized banks. Now the status is Tk 350 crores. Private banks have written off Tk40,060 crore. Now the status is Tk31,740 crores. Foreign banks have written off Tk 1,550 crore, now the balance is Tk 1,210 crore.
In this context, the former governor of the central bank Salehuddin Ahmed said, bad debt cancellation is a globally recognized method. But it is being misused in Bangladesh. Loans disbursed through fraud or irregularities are being foreclosed. This is not true at all. It is important to ensure punishment against those involved in fraud. If the defaulted loans are reduced by reducing this sector, it will not get any benefit. As now there is no benefit of write off.
According to the information available from the report, the total loan in the banking sector in 2003 was Tk 1 lakh 5 thousand crore. Till June 2023, it has increased to Tk 19 lakh 27 thousand crores. Credit flow has increased 18.35 times during the discussion period. With the increase in loan flow, defaulted loans also increased. However, loans increase more and default loans increase relatively less, the rate of default loans increased less. That is less than before. In 1998, the rate of defaulted loans was 40.70 percent. Now it has reduced to 10.10 percent. It further declined to 9 percent in December. Compared to 2003, the rate of defaulted loans has decreased by 12 percent.
In 2003, the provision against regular and defaulted loans was Tk 3,730 crores. The deficit was Tk 5,520 crore. In June 2023, it increased to Tk79,570 crore. At the same time, the deficit has increased to Tk 21,460 crore. During that period, provision reserves increased 21.33 times, deficit increased 3.89 times. At the same time, total defaulted loans increased from Tk 20,000 crore to Tk 1 lakh 56 thousand crore. However, in December it slightly decreased to Tk1 lakh 45 thousand 633 crores.