Loan write-offs decline 43% in Jul-Sept on easy rescheduling facility

Infographic: TBS

Loans written off by banks in the country declined by nearly 43% year-on-year to Tk1,148 crore in the first quarter of the current fiscal year 2022-23 as banks are less frequently using this method to recover non-performing loans.

In the same period a year ago, defaulted loans to the tune of Tk2,010 crore were written off, says the Bangladesh Bank.

Experts said banks now can reschedule defaulted loans easily which impacted the amount of written-off loans.

According to the central bank's data, banks rescheduled Tk11,515 crore of their defaulted loans in the January-September period last year, which was Tk5,402 crore in 2021 same period. The amount was Tk8,062 crore in 2020.

The central bank introduced the loan write-off scheme for the banking sector in 2003. Banks are required to keep a provision of 0.25% to 5% of their regular loans. But the provision ranges from 20% to 100% of defaulted loans. But, in case of a write-off, the entire loan amount has to be kept as a provision.

Bankers said earlier, banks needed to go to the central bank on a case-by-case basis to reschedule loans. Besides, they were forced to write-off loans which were defaulted for more than three years without being able to reschedule.

However, in July last year, the central bank gave the power of rescheduling loans to the board of the banks.

Besides, the new guidelines introduced in the same month last year require a down payment of 2.5%-4.5% to regularise defaulted loans. Earlier, 10-30% of the loan had to be paid for its regularisation.

The managing director of a private bank said on condition of anonymity that if a bank wants to write-off the loan of a defaulting customer from the balance sheet, it has to make 100% provisioning from their profits. But, it would be better if the defaulted loans could be regularised with a 2%-4% down payment.

He further said that many banks are facing a liquidity crisis right now and the amount of defaulted loans is also increasing. In this situation, the amount that can be recovered by normalising the loans will be good for the banks. As a result, the banks have increased the rescheduling amount.

Ahsan H Mansur, chairman of the board of directors at the Brac Bank, told The Business Standard, "It is the cunning of the banks to reschedule the loan of a customer who cannot repay the loan. The central bank should take a strong stand here by writing-off the loans of those who cannot repay."

"However, a good lender can become a defaulter for any reason. If he has the capacity to repay the loan, the loan should be rescheduled. It is only possible if the bank has a good board," he added.

He further said, "The central bank can deduct the provisioning money from the capital of the banks which are not in profit. Only then the defaulting customers of the banks will decrease and the banks will give loans to the good customers."

Due to the Covid-19 outbreak, defaulted borrowers received concessions in 2020 and 2021. As a result, defaulted loans were under control. As the grace period expired, the amount of defaulted loans began to rise last year.

According to the central bank data, at the beginning of 2022, the amount of defaulted loans at banks was around Tk1.03 lakh crore. At the end of June, the defaulted loan increased to Tk1.25 lakh crore, and it further increased to Tk1.34 lakh crore at the end of September.

Meanwhile, in the July-September quarter, banks waived interest to the tune of Tk350 crore. Of this, the interest waiver of private banks was Tk212 crore.

According to the central bank data, banks waived interest on loans to the tune of Tk2,293 crore in 2019, when the country's overall economic activity was normal.

Banks waived an interest of Tk1,578 crore in 2020 and Tk1,855 crore in 2021. But banks waived interest on loans to the tune of Tk3,166 crore in the first nine months of the outgoing year.