BB instructs state-owned banks to reduce non-performing loans

The Bangladesh Bank has instructed state-owned banks to reduce their non-performing loans to less than 10%, as it is a mandatory requirement to receive loans from the International Monetary Fund (IMF).

Bangladesh Bank Governor Abdur Rouf Talukder issued the instruction in a meeting with the managing directors of four state-owned banks on Tuesday.

The IMF has imposed conditions including reforms in the banking sector to get $4.5 billion as loan assistance to Bangladesh.

Some of the conditions set by the IMF include the removal of the maximum interest rate obligation for loans, disclosure of net foreign currency reserves, reduction of defaulted loans in banks, and determining currency exchange rates in line with market fluctuations.

The government has already initiated reforms in accordance with these conditions and the IMF has disbursed the first instalment of the loan.

At the end of 2022, Sonali Bank's defaulted loans totalled Tk12,005 crore, which accounts for 15.43% of its total disbursed loans, according to Bangladesh Bank. In addition, the bank had a capital deficit of Tk1,832 crore.

As a result, the Governor of Bangladesh Bank has instructed the bank to bring its default loan rate below 10% and strengthen its capital base by next June at any cost.

Another state-owned bank, Rupali Bank's defaulted loans amounted to Tk6,631 crore, which accounts for 16.56% of its total loans as of the end of 2022. The bank had a provision of Tk2,815 crore and a capital deficit of Tk2,107 crore. 

Meanwhile, Janata Bank's defaulted loans stood at Tk14,387 crore, which is 18.24% of its total disbursed loans. The bank also had a capital deficit of Tk1,500 crore.

In the meantime, Agrani Bank has defaulted on 22.31% of its loans and will need to reduce this rate by an additional 12% in order to meet the conditions set by the IMF.

In addition, a majority of the loans issued by the four banks are concentrated in only five branches, prompting the central bank to urge the collection of these loans.

The reform measures suggested by the IMF include enhancing corporate governance, reinforcing oversight of existing infrastructure and ensuring its enforcement, establishing stronger cooperation to enforce creditor rights and creating appropriate legal frameworks to incentivise borrowers to repay loans.

According to the latest report of the central bank, the amount defaulted loans stood at around Tk1.34 lakh crore in the July-September quarter of last year. After three months, it stood at around Tk1.20 lakh crore.

In October-December 2021, the amount of defaulted loans in the banking sector was Tk1.03 lakh crore.

At present, the amount of defaulted loans in state-owned commercial banks is around Tk56,460 crore. Like the government banks, the private banks are not far behind in this regard, with defaulted loans of Tk56,439 crore.

Besides, the amount of defaulted loans in foreign banks is now Tk3,048 crore and the defaulted loans in specialised banks are Tk4,709 crore.