Special rescheduling package causes sharp fall in loan recovery

The banking sector has experienced a drastic fall in loan recovery in the July-September quarter of the current year. This is because defaulters are delaying in regularising loan accounts with the intention of availing the special loan rescheduling package at the last minute.

Loan recovery against classified loans fell by 44.66 percent in the third quarter over the same period last year, according to Bangladesh Bank's latest data.

Slow loan rescheduling has also accounted for deterioration in loan recovery.

Banks rescheduled a total of Tk9,866 crore loans during the period, down 36.22 percent from the previous quarter.

Earlier, on November 3 this year, the High Court upheld Bangladesh Bank's special loan rescheduling policy that allowed loan defaulters an extension of three more months to avail the opportunity of regularising loans for 10 years by paying two percent down payment.

With the order, defaulters will be able to regularise their loans till the first week of February next year.

As a result, big defaulters have been waiting for the last minute to make down payments to regularise their loans under the new policy.

Businessmen always prefer the eleventh hour so that they can keep money circulating in their businesses, said a senior executive of a private bank.

The delay by big defaulters in regularising their loans has led to the slow recovery for the bank, he said.

The poor loan recovery took default loans to 12 percent in September – the highest in the last 10 years.

Banks are now reluctant to disburse loans because of the large number of default loans, the opportunity of loan rescheduling for 10 years and the pressure of implementing single-digit interest.

As a result, private sector credit growth fell to 10 percent in October, the lowest in recent history.

Bankers fear that the growth is likely to slip to single digits in November.