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Bangladesh - Bank & Finance - 2 weeks ago

Political will required to catch defaulters

Mahfuz Emran: The government wants to catch the willful defaulters. This time the debtors will be caught. This is being said from the policy-making level of the government. Various steps have been taken from the central bank for this. A framework has also been created to catch willful defaulters. Its implementation will start from July.
The leading economists of the country applauded this initiative. According to them, political will is needed first to catch the defaulters. Without political will or political commitment, it will not be possible to catch defaulters. Besides, many changes should be made in the existing laws to catch the debtors. The loophole must be closed. Not only that, a separate court should be set up to catch the debtors. For this, honest and efficient manpower should be appointed. Bankers should be protected. They also need to ensure accountability. At the same time, by establishing good governance in the banking sector, order should be brought in the distribution of loans. So that new loans can’t be defaulted.
Top economists of the country said these things regarding increasing the collection of defaulted loans and bringing the defaulters under the law.
Incidentally, Finance Minister Abul Hassan Mahmud Ali said in a conversation with reporters, “I want to catch the defaulters, of course, I will catch them.” Earlier, the central bank announced to take strict punitive measures against defaulters who intend to increase the collection of defaulted loans. In light of this, a policy has been formulated. Banks and financial institutions have been instructed to start its implementation from July 1. But in the light of the rules laid down in the law, it will take at least 5 months to identify the willful defaulter. In this, if the banks start correspondence with the defaulters, there is an opportunity to suspend the proceedings against them by going to the higher court. Earlier, the former Finance Minister AHM Mustafa Kamal said that defaulted loans will not increase. Debtors will be brought under the law. But still defaulted loans increased. Debtors did not come under the law.
At various times the finance minister and central bank governor have also spoken about taking action against defaulters. But it was not practically implemented. Economists believe that it remains to be seen whether the government’s desire to catch defaulters and the central bank’s initiative will be effective.
According to sources, at present, defaulted loans in the banking sector have appeared as a ‘sore on the back’. Banks are only distributing loans since before Corona. Unable to collect any debt. Due to the Corona period and the global recession, there has been a big discount on loan repayments. Although the discount has been lifted since last January, the debt collection is still not satisfactory due to the economic recession. Collections are negligible especially from top borrowers. Banks were able to recover only 2 percent of loans from top defaulters last year. Debt recovery in other sectors is also slow. Only agriculture and village informal sector debt collection is satisfactory. In this situation, the income of the banks has decreased. Costs have increased. Debts are kept on special consideration and are shown as profit in the books without charging interest. As a result, banks are running on paper profit. Meanwhile, a large portion of disbursement loans are defaulting. As a result, its amount is increasing. Although defaulted loans are reduced by evasion of accounts, in reality it is much higher. As a result, there is no income from those loans. This is reducing the asset value of the banks. As a result, capital deficit is increasing. About Tk 82 thousand crores of banks are stuck in the provision sector due to defaulted loans. In addition, the entire defaulted loan is now stuck.
According to the central bank, the defaulted loans in the country are about Tk 2.5 lakh crore. Out of this, Tk 1.5 lakh crores in the banking sector and Tk 22 thousand crores in finance companies. Out of this, the amount of bad or non-performing loans is about 88 percent. Only 8 percent of defaulted loans are new. The remaining 4 percent is doubtful debt. All remaining defaulted loans are more than 2 years old. Of this, Tk 56 thousand crores of defaulted loans have been written off. Meanwhile, in a recent event, CPD said that the amount of defaulted loans will be Tk 5.5 lakh crores.
Before Corona, the central bank had taken a strong initiative to increase recovery of defaulted loans. A seminar held at the Central Bank at that time discussed the model of recovery of defaulted loans in India. In the light of that model, law reforms were proposed for recovery of defaulted loans. According to Indian law, if a customer defaults without reasonable cause, the bank can recover the debt by selling its assets. If it is not possible to recover the debt from his assets, he can lay hands on any of his other assets.
Even then, if debt collection is not possible, the ongoing business can be taken under the control of the bank. That is, in case of default, all the business of the customer will be stopped or will be under the control of the bank. The customer will also have no assets.
In light of this, not all clauses have been connected with the initiative to reform the Financial Debt Court Act. At present, the bank can sell the customer’s mortgaged property by giving the necessary notice to the customer in case of default under the Finance Court Act. If the money is not collected, other assets can be sued in the court for sale. But only by giving a notice to the customer, the customer is able to suspend the legal proceedings with the stay of the court. As a result, defaulted loans are not being recovered. At the same time, due to the tension between the bank and the debtor, the proceedings of the case are not progressing. The Bankruptcy Act is also yet to be fully implemented. Initiatives have been taken to reform it.
In this context, the former governor of the central bank Salehuddin Ahmed said, political will is needed to catch the defaulters. Good governance should be established. First, the trend of new loan defaults should be prevented. That is why loan fraud must be stopped. To catch defaulters, they have to stop giving benefits. The central bank should be strengthened. Defaulting debts can’t be recovered by putting the debtors in the side chair. India, Malaysia, Thailand have been successful in recovering defaulted loans. Those methods should be applied in this country as well. Debt recovery institutions should be activated to collect defaulted loans. If necessary, they should be given a legal basis.
Professor Moinul Islam, former chairman of the economics department of Chittagong University and former president of Bangladesh Economic Association, said that the government does not want to catch defaulters. Because, the debtors are people around the government. People close to the government get benefits from the debtors in various ways. Due to these reasons, defaulters are always out of touch. Now the steps taken to arrest the defaulters should be implemented effectively. Otherwise, it can’t be caught. The loopholes in the law must be closed.
According to sources, the central bank has recently asked commercial banks to collect at least 1 percent of defaulted loans in cash. Banks are being held back from providing policy facilities if defaulted loans are high. A target has been set to bring down non-performing loans below 8 percent by June 2026. Earlier it has said to take various steps to catch the defaulters. The list of debtors has also been published in Parliament several times. Still, it was not possible to increase the collection of defaulted loans.
In this context, former Director General of Bangladesh Development Research Institute (BIDS) and former Chief Economist of Bangladesh Bank Mustafa K Mujeri said, the banking sector has now gone to the edge of the abyss. Now there is no option but to catch the debtors. No more concessions to debtors. If you can recover defaulted loans from them, the crisis in the banking sector will be reduced a lot. If defaulters are indulged, the banking sector will not progress in the right direction.
He also said that against the defaulters should not be done only with words. Words must be effectively applied. The message that defaulting is a bad culture, the punishment for defaulting should be given. At the same time, bankers must also be held accountable. As defaults increase due to political concessions, defaults also increase due to lack of transparency in the work of bankers.

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