Default loans at 4 banks rise despite year-round facilities

Four banks saw their default loans go up last year in spite of the Bangladesh Bank's keeping debt classification closed and allowing moratoriums on loan instalment payments throughout the year due to the coronavirus pandemic.

At the end of 2020, default loans at Rajshahi Krishi Unnayan Bank, AB Bank, South Bangla Agriculture and Commerce Bank, and Union Bank registered an increase.

The latest statistics relating to default loans obtained from sources at the central bank show that such loans at Rajshahi Krishi Unnayan Bank increased by over 8%, the highest among the four banks.

The provision deficit of banks also fell drastically because of the non-classification of loans facility last year. At the end of 2019, the provision deficit was Tk6,655 crore, which came down to only Tk123 crore at the end of last year.

The post-tax profits of banks are expected to increase significantly in 2020 as provision deficits have shrunk.

Syed Mahbubur Rahman, former president of the Association of Bankers Bangladesh and managing director of Mutual Trust Bank, told The Business Standard the reduction in provision deficit would undoubtedly play a positive role in banks' profits.

But the central bank, he said, had not yet finalised the balance sheets of banks, adding that the real picture would be known after the central bank completed its audit.

According to central bank statistics, default loans fell by over Tk5,500 crore at the end of last year.

The default loan rate on 31 December 2020 came down to 7.66% of the total loans disbursed, which had been 9.32% a year earlier.

Mahbubur Rahman said default loans decreased last year due to moratoriums on instalment payments, keeping debt classifications closed and rescheduling as well as debt cancellation facilities.

Default loans at six state-owned banks decreased by around 3%. Yet the amounts of their default loans are the highest, accounting for 47.64% of total defaults.

On the other hand, default loans at private banks also decreased, amounting to 45.5% of total defaults. Nine foreign banks operating in the country also saw their default loans go down.

Based on the relationship banks have with their clients, Bangladesh Bank has allowed two more years for the payment of term loan instalments without completely cancelling the moratorium facility. However, loan classification started last month.

The bank owners' association has demanded a three-year extension in case of term loans and repayment in three years that will include rescheduling facility without down payments in case of continuous/demand loans.

Leading figures of the Bangladesh Association of Banks raised these demands at a meeting with the governor of the central bank on Monday. They later said the central bank had assured them of considering the demands.  

Dr Salehuddin Ahmed, former governor of Bangladesh Bank, told The Business Standard default loans would go up in future if the central bank did not accept these demands.

"Bank management has not been that efficient and good governance has not increased either to such a level that defaults will not increase if facilities are closed," he explained.