NPLs fall for state banks in Q1, rise for private
Bankers have linked this rise in NPLs to a host of factors, including a decline in individual incomes, a slowdown in industrial production, and pre-election economic uncertainty.
Non-performing loans (NPLs) in state-owned banks fell in the July-September quarter of 2023, but saw a rise of approximately Tk7,902 crore in private banks, primarily attributed to the non-availability of rescheduling facilities.
Bankers have linked this rise in NPLs to a host of factors, including a decline in individual incomes, a slowdown in industrial production, and pre-election economic uncertainty.
According to data from the central bank, the total default loan in the private sector across 44 banks reached Tk81,537 crore in September, accounting for 7.06% of the total outstanding loans.
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Overall NPLs declined
While private banks experienced a rise in NPLs during the three months, overall NPLs across the banking sector have witnessed a decline of Tk646 crore, bringing the total NPL figure to Tk1.55 lakh crore, representing 9.93% of the total outstanding loans.
Three months ago, all banks' non-performing loans stood at Tk1.56 lakh crore or 10.11% at the end of June 2023.
According to bankers, the overall NPL ratio in the banking sector has decreased, primarily due to the decline in defaulted loans of a state-owned bank by about Tk11,000 crore.
According to sources, state-owned Janata Bank has taken decisive action to improve its loan portfolio by regularising the loans of two major defaulters.
This strategic move has resulted in a significant decline in the bank's NPL ratio, from 30% to 18% in just three months. The bank's defaulted loans have decreased by a substantial Tk11,500 crore, contributing to a decline in overall NPLs across the banking sector. At the same time, Janata Bank rescheduled loans worth Tk13,700 crore to two prominent business groups during the July-September period.
According to a central bank report, the non-performing loans of five state-owned banks stood at Tk65,797 crore at the end of September 2023 which is 21.70% of the total disbursed loans.
At the end of June of this year, these banks' defaulted loans stood at Tk74,454 crore, which was 25% of total disbursed loans. That is, in three months, the defaulted loans of state-owned banks have decreased by Tk8,657 crore.
Syed Mahbubur Rahman, managing director & CEO of Mutual Trust Bank, told The Business Standard that while a single bank has witnessed a decline in non-performing loans (NPLs), the overall banking sector continues to struggle with rising NPLs. Currently, the country's banking sector is going through liquidity stress.
He said the global economic uncertainty and the country's pre-election political volatility have decreased industrial investment and production. People's purchasing power is also falling, reducing their ability to pay their debts.
"Many borrowers have to convert their one-year demand loans to term loans because they are not in a position to repay the loan at this stressful time," he said, adding that this situation will linger till the election.
A managing director of a private bank, on condition of anonymity, said the actual non-performing loans will increase further in the next December quarter. Before the elections, many defaulters will have to be rescheduled on easy terms. Banks will not actually recover their defaulted loans.
He further said foreign orders in the garment sector have witnessed a significant decline of over 30%. Additionally, the import of capital goods and raw materials for all industries has decreased significantly. This decline in imports has disrupted production activities and hampered the ability of companies to repay their loans.
According to Bangladesh Bank data, the opening and settlement of import letters of credit (LCs) decreased by 11.52% and 24.07% respectively in the first four months (July-October) of the current fiscal year.
During the July-October period of FY24, the import of industrial raw materials fell by 16.12% compared to the same period of the previous fiscal year. At the same time, the import of intermediate goods fell by 21.47% during the July-October period of FY24 compared to the corresponding period of FY23.
Banks' provision shortfall widens
Despite a decline in defaulted loans in the overall banking sector, the provision shortfall has widened to Tk3,806 crore. As of September 2023, banks' provision deficit stood at Tk25,270 crore, up from Tk21,464 crore in June.
Typically, when banks experience an increase in defaulted loans, they are required to make cash provisions to the central bank as a buffer against potential losses. The level of provisioning required varies depending on the severity of the default, ranging from 20% to a full 100% of the outstanding loan amount.
As of the end of September 2023, state-owned banks faced a provision deficit of Tk12,688 crore, while private banks grappled with a deficit of Tk13,053 crore.
