Twelve banks accounted for 58% of total loan defaults in Bangladesh in June as irregularities show no sign of abating while existing bad debts remained uncollected in the absence of strong action.
Collective non-performing loans (NPLs) from banks, which include seven state-run lenders, stood at Tk 73,238 crore in the month when the stock of classified loans across the banking sector reached 125,258 Tk crore, according to Bangladesh Bank data. .
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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.
According to the International Monetary Fund, persistently high NPLs dampen economic activity, tie up bank capital that could otherwise be used to expand lending, reduce bank profitability, and increase bank funding costs.
Persistently high NPLs dampen economic activity, tie up bank capital that could otherwise be used to expand lending, reduce bank profitability, and increase bank funding costs
And local experts say there were irregularities at the banks as they failed to follow the rules when approving and disbursing loans. Also, there is an unholy connection between the bank executives and part of the politicians, contributing to the deterioration of the financial health.
Among the banks, Padma Bank was facing NPLs of Tk 3,950 crore in June, or 68% of the private commercial bank’s total outstanding loans.
Established in 2013 as Farmers Bank, the lender had fallen prey to scammers. Central bank investigations revealed that more than 3,500 crore taka had been misappropriated between 2013 and 2017.
The bank ran into serious trouble after depositors including government agencies began withdrawing their money amid corruption allegations against Muhiuddin Khan Alamgir and Md Mahabubul Haque Chisty, then Chairman of the Board and chairman of the audit committee, respectively.
Tarek Reaz Khan, Managing Director of Padma Bank, said the bank has already taken a number of initiatives, including the formation of the Collection Relations Unit, to realize the PNPs.
It recovered bad debts of Tk 72 crore in the seven months to July and another Tk 130 crore could be recovered this year, he said.
The state-owned Janata Bank faced NPLs of Taka 17,263 crore, or 25% of total lending.
The lender has also faced several lending scandals in recent years, which has driven up loan defaults to a large extent.
Some entities such as AnonTex Group, Crescent Group and Ratanpur Steel Re-Rolling Mills have 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 the required down payments from the business entity with prior approval from 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 fail to repay the amount on time, the borrowers will face strict legal action,” Salam said.
BASIC Bank, another state lender, is also in dire straits due to its large number of delinquent loans, which amounted to Tk 8,249 crore or 59% of total loans.
The bank was one of the highest rated banks in Bangladesh before Sheikh Abdul Hye Bacchu was appointed chairman of the board in 2009. It faced a reputational crisis following the scams that took place between 2009 and 2014.
The Anti-Corruption Commission has so far filed 60 cases relating to the scams, but ironically Bacchu has not been charged in any of the prosecutions.
Md Anisur Rahman, Managing Director of BASIC Bank, said the lender is currently improving its turnaround program to achieve the NPLs.
Fahmida Khatun, executive director of the Center for Policy Dialogue, believes that appointing directors of public banks for political reasons and sanctioning loans to borrowers for a similar motive have led to a large amount of funds turning into defaults. .
“Some private banks are also facing a large number of delinquent loans as they also disbursed loans ignoring banking standards,” she said.
ABM Mirza Azizul Islam, financial adviser to a former caretaker government, says the BB has frequently relaxed its loan classification and rescheduling policies, which has encouraged defaulters.
“Legal action must be taken against habitual offenders, and the legal process must be completed as soon as possible.”
Fahmida urged the central bank to strengthen its supervision to bring back discipline in the banking sector.
“Internal control and compliance need to be strengthened as this will help tackle irregularities,” she said.