Mahfuz Emran: The commercial banks of the country are increasing the amount of write offloan. In the last one year, the foreclosed loans have increased by Tk 7,319 crores. At the end of last June, the total amount of written off loans stood at around Tk 68,000 crores. Banks generally do not consider non-performing loans as non-performing loans. Due to this, the amount of defaulted loans is generally shown to be slightly lower.
According to economists and bankers, foreclosed loans are actually defaulted loans. Loans that are unlikely to be collected are excluded from the bank’s balance sheet to facilitate financial accounting. As a result, those unpaid loans are hidden from the public eye and default accounts.
According to the data of Bangladesh Bank, from 2003 to June 2023, the amount of accumulated bad debt of banks was Tk 67,721 crores. At the end of June 2022, the amount of accumulated debt was Tk 60,402 crores. In other words, the accumulated foreclosed debt has increased by Tk 7,319 crores in the space of one year.
However, after recovery of Tk 17,435 crore rupees, at the end of last June, the status of defaulted debt stood at Tk 50,286 crore. At the end of June 2022, the balance was Tk 43,360 crore. At that time the amount collected was Tk 17,042 crores. That is, in a year where the written off debt increased by more than Tk 7,000 crore. And at this time the recovery from these loans is only Tk 393 crore.
It is known that bad in the banking system is the exclusion of 100% provision against classified defaulted loans, which is treated as ‘bad and loss’, from the balance sheet is called loan write-off. Since 2003, banks have been foreclosing loans in the light of central bank policy. The borrower is considered in default until the full amount is repaid. However, it is not shown as defaulted loan of the bank. Banks can only write off loans that are unlikely to be collected in the near future and are bad defaults for at least three years. There is criticism of the process of underwriting defaulted loans.
The concerned officials of Bangladesh Bank said that rather than strengthening the collection of defaulted loans, the banks are focusing on foreclosure, which is not a good solution. Because the amount written off is not realized. If the ‘write off’ strategy is chosen without collecting the loan, then at some point the capital of the bank is also exhausted. So, it is not a good solution.
The central bank is giving an opportunity to hide the true image of the banking sector by giving various concessions. However, despite various concessions, defaulted loans have increased and created a record. According to the report of Bangladesh Bank, in the first six months of this year, defaulted loans increased by Tk 35,382 crore to Tk 156,039 crore at the end of last June. Which is 10.11 percent of the total debt. As much as defaulted loans on paper, the actual situation is more than that. However, recently the International Monetary Fund (IMF) has been asked to highlight the risky assets of the banking sector as per the conditions of borrowing. In addition to defaulted loans, risky assets include classified loans, rescheduled loans, restructured portions of foreclosed loans and court-ordered unclassified loans.
According to the report of Bangladesh Bank, Tk 378,000 crores or 25.58 percent of the total loans of the banking sector till 2022 were risky assets. And last June it increased to Tk 434,239 crores. This includes outstanding loans of Tk 156,040 crores and rescheduled and foreclosed loans of Tk 278,199 crores.
It is known that in recent times the policy of cancellation of defaulted loans has been relaxed. Earlier, defaulted loans up to Tk 200,000 could be waived without a case. From now on, loans up to Tk 5 lakh can be foreclosed without a case in the court. In many cases the cost of litigation is higher than the debt. In view of this, the central bank gave such an opportunity to cancel the small loans of the banks.
The former chief economist of the Dhaka office of the World Bank Zahid Hossain said that the new relaxation in loan waiver is not a big deal. This facility is provided for small loan waiver. As a result of this decision, a problem in the banking sector will be reduced.
He also said that the new decision will not increase the collection of defaulted loans. Because the younger ones give some money but the older ones don’t give money. But there has been no major change in the legal framework for collecting money from these influential people. Therefore, accountability should be increased in recovery of defaulted debts. Besides, good governance should be returned to the banks.
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