Defaulted loans rose by around Tk24,418 crore in the three months through June due to the non-availability of deferral and reschedule facilities.
According to data from the central bank, the total default loan in the banking sector stood at Tk1,56,039 crore in June, which was 10.11% of the total outstanding loans.
The total default loan in the banking sector stood at Tk1,31,620 crore in March, which was 8.80% of the total outstanding loans.
The loan outstanding was Tk15,42,655 crore at the end of June.
Other than the loan rescheduling policy and relaxed repayment options of the Bangladesh Bank, bankers said default loans are mounting up due to several factors – exporters delaying shipments, buyers cancelling orders, buyers delaying payments, and the non-availability of special concessions for repayment of term loans amid the global economic crisis.
If compared year-on-year, default loans increased by Tk30,781 crore in June 2023.
The toxic loans kept rising at a time when the country's banking sector is under pressure to reduce default loans to comply with International Monetary Fund (IMF) conditions over releasing instalments of $4.7 billion loans approved in January last.
Anis A Khan, former managing director of Mutual Trust Bank and former chairman of the Association of Bankers, Bangladesh (ABB), told The Business Standard that there has been a huge jump in classified loans.
"I predicted long ago that our classified loans will increase significantly in the coming days. One of the reasons for this was the opportunity to understate classified loans due to deferral and rescheduling facilities. Their terms have expired, but the businessmen cannot pay the loan instalments either. Hence, the total classified loans increased significantly as the loans were reclassified," he added.
Mentioning that a large part of these classified loans are intentional defaulters, the banker said, "A large part of the classified loans we have are not returning the loan intentionally. Here, the central bank is trying to reduce classified loans, but there is not much they can do."
He commented that political will is needed to reduce classified loans. He said businesses are suffering due to the decrease in imports, adding that due to the dollar crisis, the inability to properly import raw materials and capital machinery will affect the ability of many businessmen to pay back their loans. Arfan Ali, former managing director of Bank Asia, agreed with this statement that classified loans are increasing due to the end of deferral facilities.
He told TBS that many classified loans were offered rescheduling with a deposit of 2-5% of the total outstanding amount. As a result, banks were able to show the loans as regular by taking a small amount of deposit. He said that classified loans are showing much more now as the opportunity does not stay.
This seasoned banker said that due to inflation, businesses have more opportunities to make profits. Hence, classified loans do not seem to increase much due to inflation in the coming days. In October and December of last year, the banking sector saw default loans significantly decline by Tk13,740 crore thanks to a new loan rescheduling policy and relaxed repayment options offered by the central bank.
Borrowers got a waiver of full loan repayment for the year 2020-2021 due to Covid. 2022 had different forms of loan repayment concessions. But all concessions in loan repayments were withdrawn in 2023, which is another reason behind rising default loans, the official continued.
Another reason for the reduction of defaulted loans last December is that a borrower could get rid of the defaulter status if they could repay 50% of outstanding loans in the December quarter of last year – a facility that has been unavailable since January 2023, a central bank official added.