Janata leads, BASIC lags in written-off loan recovery

Six state-owned banks aimed to recover Tk1,790 crore from their written-off loans in the preceding year. However, their collective efforts fell short, managing to reclaim only Tk254 crore, representing a mere 14% of the set targets.

Among these, Janata Bank led the recovery, retrieving Tk87.68 crore, equivalent to 27% of its target for the year. But, BASIC Bank, grappling with financial distress, could only salvage Tk5 crore out of its Tk200 crore target.

Sonali Bank had a recovery target of Tk500 crore from written-off loans in 2023, but it managed to recover Tk59 crore only.

Agrani Bank could recover Tk56 crore against its target of Tk400 crore while Rupali Bank managed to recover Tk13.48 crore, although it had a target of Tk60 crore. BDBL recuperated Tk33 crore against a target of Tk300 crore.

Bankers have attributed the poor recovery of written-off loans by the state-owned banks to several factors, such as ineffective recovery mechanisms, limited financial and human resources, legal complexities, etc.

Written-off loans of Sonali, Rupali, Janata, Agrani, BDBL and BASIC banks have risen by Tk37 crore in one year. The increase will reduce the net profit of the banks, say experts.

Bankers say that non-performing loans (NPLs) in the country are at an all-time high due to irregularities and corruption. Banks are adopting various methods to reduce NPLs, one of which is writing off loans.

Writing off loans reduces net profit of the bank as that requires 100% provisioning, they say.

According to Bangladesh Bank data, the total amount of written-off loans of these six state-owned banks stood at Tk18,150 crore at the end of 2023.

At the end of 2023, Sonali Bank's written-off loan was Tk6,611 crore, Janata Tk3,245 crore, Agrani Bank Tk3,941, Rupali 567.63, BDBL 1327 and BASIC was 2458 crores.

Written-off loans in banking sector stands at Tk50,286 crore

The total amount of written-off loans in the entire banking sector stood at Tk50,286 crore at the end of September.

According to Bangladesh Bank data, Sonali Bank recovered Tk106 crore from written-off loans in 2022. The amount was Tk112 crore for Janata Bank, Tk68 crore for Agrani Bank, Tk11 crore for Rupali Bank, Tk11 crore for BDBL and Tk29 crore for BASIC Bank.

Bangladesh Bank has recently announced a roadmap to reduce NPLs. According to the roadmap, if a loan is classified as "bad" after two years instead of three, it can be written off and removed from the bank's balance sheet. Bangladesh Bank has also said that the method will reduce NPLs by more than Tk43,000 crore.

Before the new rule, Bangladesh Bank's rule was that if a bank's bad loans could not be recovered for three years, it would be separated from the bank's main balance sheet and kept in a separate ledger book. Before that, 100% security deposit or provisioning and a case had to be filed with the financial court. This is known as loan write-off in banking terminology. This is how banks had been writing off loans since 2003.

Asked about loan write-offs, Bangladesh Bank Deputy Governor Abu Farah Md Nasser told The Business Standard that the decision to write off loans within two years has been taken to keep the banking sector healthy in the long run.

Former Bangladesh Bank Governor Salehuddin Ahmed said, "The situation worsens because of not being careful while sanctioning loans. The banks are not being able to recover the money that was given under pressure from the higher authorities. Now, there is no alternative to legal action against them [loan defaulters] to save the banking sector. Otherwise, high-risk assets like non-performing loans, rescheduling, and write-offs will continue to increase."

Policy Research Institute Executive Director Ahsan H Mansur said that rescheduling and write-off interest waivers are bad practices. "In this situation, NPLs will decrease, but the health of the bank will not improve. There should be no hiding here. Whatever happens, it should be revealed. Then it will be understood that the policies are not being effective."

According to the central bank data, as of last September, the NPLs in the banking sector were Tk1,55,398 crore, which is 9.93% of the total loan. The NPLs in the state-owned commercial banks stood at 21.70% of their total loans and 7.04% of the loans for private banks.