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Bank & Finance - January 30, 2022

The curse of default loans

Financial insts facing crisis

Golam Mostafa Jibon: Country’s financial institutions are facing severe crisis for rising of default loans. As a result, confidence of the clients in this sector is declining gradually.
At the end of September 2021, some 34 financial institutions disbursed loans amounting to Tk 66,740 crore. Of them, defaulted loans stood at Tk 11,757 crore, which is 17.62 percent of the loans disbursed until that time.
All the six financial institutions have loans worth Tk 7,670 crore, which is 65.23 percent of the total defaulted loans. Bad loans are on the rise in financial institutions. Six companies have 65 percent of the total defaulters. Tension has mounted due to reckless activities of the institutions. After disbursing the loan through irregularities, the money is not going to be withdrawn.
Former Governor of Bangladesh Bank Salehuddin Ahmed said, “The central bank had given a lot of concessions for the repayment of loans during the Corona pandemic. But, financial institutions have become negatively affected like banks due to closure of these special facilities.” The matter of providing facility to regularize the loan after repaying 15 percent of the total loans has announced at the end of the year. For this, many people did not repay their loans on time. Besides, the condition of many financial institutions has become fragile due to corruption and irregularities. Those cannot refund money. As a result, consumers are in a crisis of confidence.”
Former caretaker government’s financial adviser AB Mirza Azizul Islam said, “A lot of money was withdrawn in named and unnamed (anonymously) from some financial institutions, which has not yet been returned. Besides, many companies are not able to return the customer’s money. There has been widespread irregularities and corruption in the sector due to poor surveillance by the central bank.”
Total defaulted loans:
According to the report of 34 financial institutions active in the country, at the end of 2020, the defaulted loans of these institutions were Tk 10,053 crore, which is 15.02 percent of the loans disbursed at that time.
In the first quarter of 2021, from January to March, defaulted loans increased to Tk 10,354 crore.
Three months later in June, the defaulted debt of these institutions stood at Tk 10,328 crore by decreasing at Tk 25 crore. But in the July-September quarter, the amount of defaulted loans of financial institutions increased by Tk 1,429 crore and stood at Tk 11,757 crore. In other words, defaulted loans have increased by about Tk 1,704 crore in nine months.
High defaulted loans in six financial institutions:
According to the central bank report, six financial institutions are on the brink of bankruptcy due to high default, provision deficit and capital deficit. These are: Bangladesh Industrial Finance Company (BIFC), Fareast Finance and Investment, First Finance, International Leasing and Finance Limited and First Finance and Premier Leasing and Finance.
At the end of September 2021, BIFC had disbursed a loan of Tk 814 crore, of which, 95.18 percent were defaulted. The amount of defaulted loan is Tk 775 crore. Of them, Bangladesh Bank does not see any hope of repaying the loan of Tk 772 crore as this debt is badly classified. First Finance has given a loan of Tk 1,930 crore until September. Of them, the defaulter is Tk 1,733 crore, which is 89.80 percent of the total disbursed loan.
Meanwhile, the total debt of First Finance is Tk 786 crore. Of them, Tk 647 crore is defaulted. About 73.8 percent of the disbursed loans are in default.
International Leasing has lent Tk 4,042 crore until September. Of them, the default amount is Tk 3,279 crore. About 81.13 percent of the total loans have become defaulted here.
As of September, Premier Leasing had disbursed Tk 1,325 crore. Of them, about Tk 761 crore was defaulted, which is 57.41 percent of the total debt.
On the other hand, Fareast Finance and Investment’s defaulted loans amounted to Tk 475 crore out of a total loan of Tk 967 crore until September, which is 49.19 percent of the total loan.
Irregularities in various organizations:
At present, at least four government and 30 non-government financial institutions are operating in the country. With the connivance of directors and officials of various financial institutions, huge sums of money was withdrawn in the name of loans, due to which the financial base of this sector has become very weak. The situation in the sector has worsened since the abolition initiative of Peoples Leasing in 2019. In a few days, Proshanta Kumar (PK) Haldar, former MD of NRB Global and Reliance Finance, came up with the issue of embezzling around Tk 3,500 crore. The court also appointed a Chairman for International Leasing and BIFC. Marking the most fragile institutions as ‘Red Zones’, Bangladesh Bank has brought those under special surveillance. Bangladesh Bank’s updated Financial Stability Report said, bad debts in particular have affected the situation in the sector. This is the worst situation in the last decade. All in all, most financial institutions are now in a financial crisis.

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