Bad loan recovery drops 51% in Q3 2022
Worsening business situation amid dollar crisis, and central bank’s liberal policies in realising loans blamed
Bad loan recovery dropped 51% to Tk1,876 crore in the July-September quarter of 2022 compared to Tk3,857 crore in the previous quarter, according to the latest data of the central bank.
Bankers say the worsening business situation amid the dollar crisis, and liberal policies of the central bank in realising loans are behind the drastic fall.
The amount of defaulted loans, however, increased by Tk13,791 crore to Tk1.34 lakh crore in the quarter. The total amount of the defaulted loans was some Tk1.03 lakh crore at the end of 2021.
"Loan recovery usually gets momentum in June and December. The rules were somewhat relaxed in July-September, the first quarter of FY23," a senior official of a private bank, wishing to remain unnamed, told The Business Standard.
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"Most of our loans are to industries that have been facing a crisis since the beginning of the Russia-Ukraine war in April last year. Their production decreased by 15-20%. As a result, many failed to repay bank [defaulted] loans in the quarter," he added.
"The key reason behind the lower rate of loan recovery than the rate at which the defaulted loans are increasing is the relaxed repayment policy of the Bangladesh Bank," said Anis A Khan, former managing director of Mutual Trust Bank.
"The relaxed policy is fine for some businessmen who are actual victims but some others are taking advantage of that. So, the amount of defaulted loans has been on the rise and the recovery on the decline."
As a consequence, banks do not get their money returned and fail to lend to new clients, he added and said, "The central bank should now increase restrictions again to give a strict message to lenders as well as defaulters."
Emphasis should now be on the sale of mortgaged properties, Anis A Khan suggested.
The Bangladesh Bank data also shows that banks rescheduled Tk5,551 crore loans in the July-September quarter, which was Tk3,706 crore in the previous quarter.
"Non-performing loans are increasing and the recovery is decreasing, because most businesses have been passing tough days for a long time. Even SMEs are being defaulted as they cannot import and operate their businesses smoothly," a Bangladesh Bank senior official, wishing to remain unmanned, told TBS.
The Bangladesh Bank imposed many restrictions on imports in April last to curb inflation, and stabilise the dollar market amid the depleting foreign exchange reserves. The move resulted in a drastic fall in opening letters of credit as well as imports.
The central bank had a complete relaxation in loan repayments in 2020 due to the Covid-19 pandemic. In the next year, borrowers continued to enjoy some of the relaxation facilities.
Even in 2022, small-scale entrepreneurs were allowed to pay 50-75% of their instalments.
When a customer's loan is in default for a long time, it is necessary for the bank concerned to reschedule the loan. It will recover a portion and help banks get a normal situation, Policy Research Institute Executive Director Ahsan H Mansur told TBS.
Banks should also encourage their clients to be good borrowers, he also the chairman of Brac Bank, added.
