Default loans surge amid massive rescheduling

Instead of focusing on cash recovery from defaulters, rescheduling of bad loans was the most preferred mode for banks in the first three months of the current year.

Banks rescheduled a total of Tk5,839 crore in the January-March quarter, which was 6.21 percent of the total non-performing loans (NPLs).

At the same time, the lenders recovered cash of Tk2,771 crore from defaulters, which is 2.95 percent of the total bad debts, according to data Bangladesh Bank released on Tuesday.

Despite rescheduling the large amount of loans, the default loans increased by Tk16,962 crore, taking the total NPLs to Tk110,873 crore.

Highlights:

1.     Tk 5,839 crore rescheduled in January-March quarter

2.     Tk 2,771 crore recovered from defaulters

3.     Default loan increases by Tk 16,962

4.     Total default loans Tk 110,873 crore

5.     Social Islami Bank Ltd reschedules highest Tk3,000 crore.

Speaking on this, a senior executive of a private bank said loan recovery usually remains slow at the beginning of a year.

Banks focus on loan disbursing instead of recovering until the month of September of a year and go for massive recovery drives in December, he added.

He said banks prefer regularising default loans through rescheduling to reduce their provisioning burden.

According to rules, banks have to keep certain amount aside against default loans to avert any future risk.

If a default loan is regularised even after compromising required down payment, it will help banks maintain lower provisioning, he said. The low provisioning improved profitability indicators of the banks.

When a bank makes provision, the money gets stuck and cannot be used for loans.

Central bank data shows that private banks were ahead in loan rescheduling than state-owned lenders between the months of January and March.

Among the top 10 banks in terms of high loan rescheduling, only two were state-owned.

Social Islami Bank Ltd, which was taken over by Chattogram-based S Alam group in 2017, rescheduled the highest amount of loans worth some Tk3,000 crore.

The bank’s recovery from its default loans was only Tk3 crore.

Despite rescheduling loans, the lender’s NPLs increased by Tk173 crore in the first quarter of the year.

Islami Bank Bangladesh Ltd, which was also taken over by the same group the same year, ranked 7th among the top 10 banks with its rescheduling amount of Tk100.68 crore.

The country’s biggest private bank recovered Tk110.47 crore from its default loans. Its ban debts doubled to Tk6,916 crore.