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Failure in repayment of loans is a serious threat to the banking sector: Mustafizur Rahman

Published in The Daily Observer on Saturday, 1 April 2017

Default industrial loans stand at Tk 24,563.49cr in 6 months

Abu Sazzad

The default loans in the industrial sector stood at Tk 24,563.49 crore as of December 31 or first half (July to December) in the current fiscal 2016-17 due to  lack of effective loan recovery measures by scheduled banks and non-bank financial institutions.

On the other hand, the amount of default loans in the same sector during the period (July-December) in the fiscal 2015-16 was 19,746.84 crore

According to the latest data of Bangladesh Bank, default industrial loan increased by 24.39 per cent in the first half of the current fiscal,

Experts have expressed their concern over rise in default industrial loans in the banking sector. The defaulters blamed dull business environment, poor infrastructure and lack of power supply to the industries for their failure to repay the loan installments.

Ali Reza Iftekhar, Managing Director of Eastern Bank Ltd, said the default loan is the key challenge for the banking sector. “We have to take initiatives to reduce the non-performing loans at any cost as the default loans damage the reputation of a bank”, he said.

Actually, the recent rise in default industrial loans was mainly due to the failure of the scheduled banks to take into consideration the risk factors and also absence of effective loan recovery measures, he claimed.

Bangladesh Bank spokesman Subhankar Saha said the central bank has already installed industrial loan monitoring software to know the loan behaviour of the customers. On the basis of the loan characteristics, the central bank will instructed the scheduled banks to recover the due installments. However, he hopes that the initiatives will help reduce the amount of default industrial loans.

Md Helal Uddin, Director of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) said industrial loan is an important factor for industrialization in the country. So, the credit analysts of the banks have to be cautious to set the credit limit in favour of the industrialists, he added.

Due to lack of adequate energy and power, a good number of businessmen failed to repay installments of their loans in due time. Poor infrastructure also remains a hindrance to expanding their business. He urged the government to provide power connection immediately to the new factories.

 Centre for Policy Dialogue (CPD) Fellow Mustafizur Rahman said failure in repayment of loans is a serious threat to the banking sector. It reduces banks’ capability to provide fresh loans for long term in future.

Besides, indiscriminate loan disbursement by banks also resulted in soaring default credit in the industrial sector, he said, adding that the defaulter loans increased in the first half of the current fiscal as banks did not disburse the loans to the proper clients.

He further said that the central bank should speed up its monitoring process to ensure the quality of loan disbursement. Otherwise, the default loans in the industrial sector will increase further, he said.

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