Recovery falls Tk1,964cr in Jan-Mar amid rising default loans

When the amount of defaulted loans in the country's banking sector is increasing, the recovery of such toxic credits saw a decrease of around Tk2,000 crore quarter-on-quarter in the first three months of this year.

According to data from the Bangladesh Bank, defaulted loans rose by Tk11,000 crore in the January-March quarter, while banks were able to recover just Tk3,314 crore.

Between October and December of last year, the banking sector saw a significant decline of Tk13,740 crore in non-performing loans, even though during that time banks recovered Tk5,278 crore from this sector.

Bankers said default loans are mounting up due to several factors, such as 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.

They also said the recovery is unlikely to be from any specific quarter; rather, it may be from previous defaulted loans of one or two years.

Additionally, the bankers attributed the decline in recovery to deteriorating business conditions and increasing import costs caused by the dollar crisis.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said banks are experiencing an increase in "stressed assets" as exporters face shipment delays, order cancellations, and delayed payments by buyers amid the global economic crisis.

"Thus, loans cannot be recovered from many defaulted borrowers due to the slowdown in business," he told The Business Standard.

"In addition, banks have to generate large amounts of forced loans due to high currency devaluation, rising energy prices, low gas pressure, import restrictions, a slowdown in industrial production, and the reduced debt servicing capacity of borrowers," he added.

The managing director of another private bank, speaking on the condition of anonymity, said the reason for the decrease in recovery compared to the rate at which defaulted loans are increasing is the relaxed loan repayment policy of the Bangladesh Bank.

"The circular is fine for some really affected businessmen. On the other hand, a section of businessmen is taking advantage of this and not repaying loans. It shows that money is not coming to banks, and banks are not able to make new loans," he added.

The total default loan in the banking sector stood at Tk1,31,620 in March, which was 8.80% of the total outstanding loans.

The default loan was lower in December last year at Tk1,20,656 crore, which is 8.16% of the total outstanding.

For the last three years, borrowers have enjoyed various facilities for the repayment of loans. There was a moratorium on loan repayment in 2020 and 2021 due to the Covid pandemic. Although the moratorium was withdrawn at the beginning of 2022, borrowers still received a loan repayment exemption in that year due to the Ukraine-Russia war.

The central bank again withdrew the facilities for loan repayment at the beginning of this year, but it could not hold on to this position.

Recently, the Bangladesh Bank relaxed loan repayment for businesses that took short-term demand loans from banks.

The borrowers with unclassified demand loans will be allowed to repay 50% of their instalments payable for the April-June quarter of 2023.

The loans that usually carry a repayment period of three months are termed demand loans. Banks mainly give such types of loans to importers in the form of post-import financing.

Banks in Bangladesh rescheduled Tk3,376 crore of their defaulted loans in the January-March quarter of this year, marking a significant decrease of nearly 81% compared to the previous quarter, according to data from the central bank.

In the October-December quarter of 2022, the rescheduled loan amount stood at Tk17,768 crore.

Bankers have noted that the loan rescheduling in the March quarter of this year reflects a normal scenario in the banking sector. However, the unusually high increase in the December quarter was attributed to the rescheduling of defaulted loans by some large customers.

According to central bank data, at the end of March 2023, non-performing loans of state-owned banks stood at Tk57,958 crore, which is 19.87% of total loans. The loans totalled Tk56,460 crore in December 2022.

Besides, non-performing loans of private banks stood at Tk65,888 crore at the end of March this year, which is 5.96% of total loans.

According to the IMF country report on $4.7 billion in loan approval for Bangladesh, the central bank will have to adopt international best practices in loan classification.

The central bank also committed to the IMF that it would reduce average non-performing loan (NPL) ratios to below 10% for state-owned banks and below 5% for private banks by 2026.