Originally posted in The Daily Star on 14 August 2022
Dozen banks hold about 60pc default loans
Twelve banks accounted for 58 per cent of the total default loans in Bangladesh in June as irregularities show no signs of abating while existing bad debts have remained unrecovered in the absence of strong action.
Collective non-performing loans (NPLs) at the banks, which include seven state-run lenders, stood at Tk 73,238 crore in the month when the stock of classified loans in the entire banking sector reached Tk 125,258 crore, data from the Bangladesh Bank showed.
The banks are National Bank of Pakistan, ICB Islamic, Padma, BASIC, Bangladesh Commerce, Bangladesh Development Bank, Janata, National, Rajshahi Krishi Unnayan, Sonali, Rupali, and Agrani Bank.
Persistently high NPLs are drag on economic activity, tie up bank capital that could otherwise be used to expand lending, lower bank profitability, and raise bank funding costs, according to the International Monetary Fund.
Persistently high NPLs are drag on economic activity, tie up bank capital that could otherwise be used to expand lending, lower bank profitability, and raise bank funding costs
And local experts say irregularities were committed in the banks as they had not followed rules while approving and disbursing loans. Besides, there is an unholy nexus between the directors of the banks and a section of politicians, contributing to the deterioration of financial health.
Of the banks, Padma Bank faced NPLs to the tune of Tk 3,950 crore as of June, which is 68 per cent of the private commercial bank’s total outstanding loans.
Established in 2013 as Farmers Bank, the lender had fallen prey to scamsters. Central bank investigations found that more than Tk 3,500 crore was siphoned off between 2013 and 2017.
The bank fell into deep trouble after depositors, which included government agencies, started pulling out their money as allegations of corruption arose against Muhiuddin Khan Alamgir and Md Mahabubul Haque Chisty, then board chairman and the chairman of the audit committee, respectively.
Tarek Reaz Khan, managing director of Padma Bank, said the bank had already taken a number of initiatives, including forming the recovery relationship unit, so as to realise NPLs.
It got back bad loans of Tk 72 crore in the seven months to July and another Tk 130 crore might be recovered this year, he said.
State-owned Janata Bank faced NPLs amounting to Tk 17,263 crore, or 25 per cent of the total loans.
The lender has also faced several loan scandals in recent years, which pushed up the default loans to a large extent.
Some entities such as AnonTex Group, Crescent Group and Ratanpur Steel Re-Rolling Mills embezzled funds from the bank in the name of loans.
AnonTex alone accounted for NPLs of Tk 1,209 crore, according to Md Abdus Salam, managing director of Janata Bank.
“We are now trying to reschedule the loan by taking required down payments from the business entity with prior approval of the central bank,” he said.
NPLs with Crescent Group stand at Tk 3,572 crore.
Janata Bank has asked the owners of the entity to return a certain amount of money within the next seven days.
“The court has already issued an arrest warrant against them. If they do not repay the amount on time, the borrowers will have to face strict legal actions,” Salam said.
BASIC Bank, another state lender, is also in dire straits due to its large amount of default loans, which were Tk 8,249 crore, or 59 per cent of the total loans.
The bank was one of the top-rated banks in Bangladesh before Sheikh Abdul Hye Bacchu was appointed board chairman in 2009. It has been facing a reputation crisis following the scams that took place between 2009 and 2014.
The Anti-Corruption Commission has so far filed 60 cases in connection with the scams, but ironically Bacchu was not accused in any of the lawsuits.
Md Anisur Rahman, managing director of BASIC Bank, says the lender is now enhancing its recovery programme to realise the NPLs.
Fahmida Khatun, executive director of the Centre for Policy Dialogue, thinks appointing directors to the state-run banks on political consideration and sanctioning loans to borrowers on a similar ground caused a large amount of funds to turn into defaults.
“Some private banks are also facing a big amount of default loans as they too have disbursed loans ignoring banking norms,” she said.
ABM Mirza Azizul Islam, a finance adviser to a former caretaker government, says the BB frequently relaxed its policies on loan classification and rescheduling, which encouraged defaulters.
“Legal action should be taken against the habitual defaulters, and the legal process should be completed as early as possible.”
Fahmida urged the central bank to beef up its monitoring to bring back discipline to the banking sector.
“Internal control and compliance should be strengthened as it will help tackle irregularities,” she said.