Janata Bank and Islami Bank Bangladesh Ltd have been served show-cause notices by Bangladesh Bank over an unusual rise in non-performing loan (NPL) in the first quarter of the current year.
The NPL of Islami Bank, the largest private commercial bank, doubled to 8.83 percent in March from 4.30 percent in December last year, according to Bangladesh Bank.
On the other hand, the NPL of state-owned Janata Bank rose by 23 percent in three months and stood at 47 percent.
The substantial rise in NPL of both banks has made the central bank serve the show-cause notice, said a senior BB executive.
The banks, however, blamed slow recovery of NPL.
Chittagong-based business conglomerate S Alam Group took control of the Islami Bank, acquiring the majority of its stakes, in 2017. This is when the bank started experiencing soaring bad loans.
Islami Bank’s loans were 3.73 percent in December 2017, much lower than the accepted 5 percent.
Since the new management took charge, the bank saw an increase of 173 percent or Tk4,400 crore in NPL from January 2018 till March 2019.
Only in first three months this year, default loans of the bank increased by Tk3,600 crore, totaling Tk6,916 crore.
The Islami Bank recovered only Tk110 crore cash which was 3.33 percent of its NPL. The bank rescheduled loans of Tk100 crore during the same period, central bank data shows.
Despite rising NPL, the bank continued to lend – exceeding the authorised limit of advance deposit ratio – measurement of loans as a percentage of deposits.
The advance deposit ratio of the bank was 91 percent in March when Islamic banks are allowed to lend Tk89 against Tk100 deposits.
Janata Bank saw an unusual rise in NPL after its two big defaulters AnonTex and Crescent defaulted around Tk9,000 crore.
Default loans of Janata Bank increased by Tk4,200 crore to Tk21,410 crore, in the first three months. In 2018, the bank saw a 137 percent rise in NPL, according to the BB.
The bank recovered Tk409 crore cash from defaulters in the first three months of the current year – only 2.38 percent of its total default loans.