Scam-hit banks, NBFIs take lead in defaulted industrial loans
43% industrial loans of 16 banks, NBFIs now defaulted
The amount of defaulted industrial loans has kept mounting with 16 banks and non-bank financial institutions (NBFIs) – most of them made the headlines for various scams in the past – being the worst sufferers, which, experts say, is attributable to sanctioning of large loans without proper credit risk assessment.
According to the Bangladesh Bank's data, banks and NBFIs in the country have some Tk6.69 lakh crore in outstanding loans in the industrial sector until June this year, of which over Tk58,143 crore or about 9% have turned default. Three months ago, the volume of defaulted industrial loans was Tk52,372 crore.
Surprisingly, the average rate of defaulted industrial loans of the 16 worst-performing financial institutions – including nine banks and seven NBFIs – is whopping 43.23% as Tk24,611 crore of their total outstanding industrial loans of Tk56,936 crore have turned bad. Individually, each of these institutions has at least 30% of their total outstanding industrial loans in default status.
The nine banks are BASIC Bank, Bangladesh Development Bank, Janata Bank, Sonali Bank, Rajshahi Krishi Unnayan Bank, ICB Islami Bank, National Bank of Pakistan, Bangladesh Commerce Bank, and Padma Bank, while the seven NBFIs are Bangladesh Industrial Finance Company, CVC Finance, First Finance, Fareast Finance, Fas Finance, IIDFC Finance, and International Leasing.
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People who are cognisant of the country's financial sector told The Business Standard that defaulted loans are increasing abnormally in some institutions because of a lack of necessary risk assessment before loan disbursement.
Besides, most of the loans are disbursed to large industrial borrowers, which is why the non-repayment of any of these loans leads to a substantial rise in the overall amount of default loans of the lender concerned, they added.
Zahid Hussain, former lead economist of the World Bank's Dhaka office, said large industrial borrowers default on loans more than smaller companies.
"Because large companies can avail loans easily even after frequent defaults, the rate of defaulted loans is on the rise in the sector. Besides, distressed debts in this sector are much higher than defaulted loans due to the prevalence of rescheduling and restructuring facilities."
Even though large industrial enterprises and state-owned enterprises account for most defaulted loans, they are apparently beyond the reach, Zahid Hussain pointed out, adding, "It must be made sure these out-of-reach borrowers do not get new loans. Only then will the defaulted loans in this sector come down."
Emranul Huq, managing director and CEO of Dhaka Bank, told TBS, "All the banks in our country encourage loans to the industrial sector. These loans are usually long-term and large. This is why when such a loan turns default, the overall figure of default loans of the bank swells."
He also said that the amount of defaulted industrial loans is high in some banks because the banks do not make credit risk assessment properly in cases of project loans.
Defaulted loans will keep rising if various factors – including how much money is needed for the project, whether the project is viable, whether the management is competent, and how much the borrower's market competitiveness is – are not assessed properly, he added.
"Industrial loans are very technical. The banks which have good technical knowledge can manage these loans well and those who give loans without proper assessments are bound to see their loans turn bad," he maintained.
The central bank's updated report says the amount of defaulted loans in the banking sector stood at Tk1.25 lakh crore at the end of this June, and 46% or Tk47,615 crore of this were industrial loans.
On the other hand, of the total defaulted loans of Tk15,936 crore posted by NBFIs as of June, Tk10,527 or 66% were given to the industrial sector.
Among the country's commercial banks, six state-owned ones have the highest rates of default loans. These banks have Tk86,563 crore in outstanding industrial loans, of which Tk19,529 crore or 22.56% have turned default.
On the other hand, the 19 private commercial banks have Tk19,689 crore industrial loans in default status, which is 5.66% of their total outstanding loan of Tk3.48 lakh crore.
According to the Bangladesh Bank, total loans disbursed to the industrial sector in the April-June quarter of this year stood at Tk1.28 lakh crore, up by over 5.5% from Tk1.21 lakh crore disbursed in the previous quarter.
In contrast to the increase in disbursal, the recovery rate of industrial loans in the June quarter dropped by over 13% to Tk88,231 crore when compared to Tk1.12 lakh crore recovered in the March quarter.
