It seems the rise in soured loans has become unstoppable, no matter what actions the government takes, real or cosmetic.
In the last quarter of July to September, the non-performing loans increased by another 3.43 percent or Tk3,863 crore.
Only about five months ago, the Bangladesh Bank had relaxed its loan rescheduling policy, making it much easier to turn a default loan into regular one in the hope that it would bring down default loans significantly.
The measure preceded Finance Minister AHM Mustafa Kamal's announcement, soon after his sitting in the hot seat, that non-performing loans would not increase from then on.
But, it now proves sceptics right that cosmetic solution will not fix the problem unless real reforms are done by proper diagnosis of the problem.
The reality becomes more stark as default loans increased by 17 percent since June last year when rescheduling was relaxed.
The relaxation was done in the hope that as default loans will be easily turned into regular loans, the non-performing loan portfolio will look slim.
But that has not happened.
Earlier on January 10 this year, Finance Minister AHM Mustafa Kamal said NPLs would not increase anymore because the Bangladesh Association of Banks (BAB) would take necessary measures to check the loans.
However, default loans ended up increasing by Tk22,377 crore from December last year to September this year.
Default loans stood at Tk116,288 crore in September, which is 12 percent of the total loans, according to central bank data.
The finance minister encouraged defaulters instead of taking punitive action against them, said Khondkar Ibrahim Khaled, former deputy governor of the Bangladesh Bank.
"In other countries, loan defaulters are punished. But in Bangladesh, they are awarded by increasing repayment period through relaxing the loan classification rule," he added.
Moreover, the special loan rescheduling policy encouraged regular clients to be wilful defaulters to avail the facility of long-term repayment and low interest rates, said Ibrahim Khaled.
Now, the sceptics have been proven right. A cosmetic solution will not fix the problem, unless real reforms are taken based on proper diagnosis of the problem.
However, the central bank is still hopeful and sticking to its guns.
"Default loans increased because the banking sector is yet to reap the benefits of the special loan rescheduling policy," said Md Serajul Islam, executive director and spokesperson of the Bangladesh Bank.
Claiming that the policy could not be fully implemented because of a High Court stay order, he hoped that the positive impact of the policy would be reflected in December.
Earlier on May 21, the High Court had stayed a circular of the central bank in response to an appeal from the Human Rights and Peace for Bangladesh.
However, the Appellate Division halted the stay order for two months, allowing defaulters to avail the facility but barred them from borrowing funds from any other bank during that time.
Following this, defaulters arrived at the banks in hordes to avail the facility from June. On October 20, the court extended the period for special rescheduling opportunity for another month.
Finally, on November 3, the High Court upheld the special loan rescheduling policy, giving loan defaulters three more months to avail the opportunity. This casts doubt on Serajul Islam's explanation.
Not everyone agrees with the central bank spokesperson.
"The repayment behaviour of borrowers has changed significantly in recent times," said Md Arfan Ali, managing director of Bank Asia.
He added that many regular customers are breaching their commitment in repaying loans to take advantage of the relaxed policy, resulting in the rise in default loans.
This claim is backed by data, which show that this time around private banks accounted for the sharp rise in default loans in the July-September quarter.
Private banks contributed to 69 percent of the total amount of increase in default loans during this three-month period.
Instead of helping banks to reduce default loans, the policy boosted bad loans as regular customers are willingly defaulting to capitalise on the opportunity of long-term loan repayment, said a top executive of a private bank.
"Moreover, if the loan policy is availed, customers will get lower interest rates, further encouraging them to default on loans," the official added.
An analysis by the Centre for Policy Dialogue shows that borrowers with no record of bad loans in the last one year were offered a 10 percent rebate on interest.
On the other hand, bad borrowers are getting longer periods to repay their loans than the time given to the good borrowers.
The policy also allows bad borrowers to enjoy low interest rates compared to what the good borrowers are enjoying.
Under the policy, defaulters are allowed to pay only a 2 percent down-payment, a 10-year loan repayment period, and a one-year grace period. The rescheduled loans will have to be repaid at only 9 percent interest rate – the lowest range of rate.
Those who had initially taken loans at a higher interest rate can now repay at a much lower rate, which may encourage more borrowers to default, according to the CPD analysis.
In April this year, the Bangladesh Bank relaxed its loan classification rule, backtracking from international standards and allowing defaulters more time to pay off their instalments.
The relaxed policy came into effect from June 30 but failed to reduce default loans.
Now, to reduce NPLs, the finance ministry is planning to form an asset management company by borrowing money from the Asian Development Bank.
Under this plan, the company will purchase bad assets from banks at low costs and recover the assets that were mortgaged.
In this case, theoretically, both banks and defaulters will get relief from the burden of bad assets.
Banking sector experts said this measure will not bear any fruit either, and instead, turn out to be be another privilege for defaulters.
If the asset management company fails to recover the mortgaged assets, the government will be the loser. The burden of default loans will shift to the shoulder of the public, because the ADB's loan will be repaid using public funds, they said.