NBFIs' sour loans soar by Tk2,091cr in April-June

Defaulted loans in the country's non-bank financial institutions (NBFIs) have nearly tripled compared to fresh disbursements in the April-June quarter following the end of the moratorium on repayment and economic sluggishness.

This comes at a time when many scam-hit NBFIs have long been struggling with a severe fund crisis and sky-high non-performing loans (NPLs).

According to data from the Bangladesh Bank, non-bank financial institutions disbursed Tk885 crore in the three months through June but reported an increase in NPLs of Tk2,091 crore.

At the end of March this year, NBFIs had total loans of Tk72,150 crore, with defaulted loans amounting to Tk19,951 crore, which accounted for 27.65% of the total loan portfolio.

The defaulted loans stood at 23.88% in December and 22.96% in June 2022 of the total outstanding.

The central bank data showed the financial institutions experienced an increase of Tk4,015 crore in toxic loans in the last fiscal year.

An official at the Bangladesh Bank stated that loans are not increasing due to various reasons, including the fund crisis at several financial institutions. Additionally, since April, defaulted loans have suddenly surged following the withdrawal of a special waiver for loan repayments.

He said measures are being taken to enhance the recovery of defaulted loans, particularly in response to the fund crisis. These institutions have intensified their efforts to recover defaulted loans as a means of ensuring their survival.

Abdul Jabbar, managing director of Aviva Finance Limited, stated that borrowers had received a special loan repayment concession for almost three years. Now that this benefit has been lifted, defaulted loans are on the rise.

"Many institutions had kept information about defaulted loans hidden, but the true extent of the issue is becoming apparent now."

He said many people do not want to invest ahead of the elections, due to which the speed of loans is low.

The managing director of another financial institution told TBS that some institutions had been providing loans to shell companies, and this information had been kept confidential for an extended period.

"However, due to the IMF conditions and heightened monitoring by the central bank, the volume of defaulted loans has increased," he added.

He also mentioned that some banks are offering 12% interest by issuing bonds, while financial institutions can only offer interest on deposits as high as 10%. As a result, banks consistently attract deposits due to their higher interest rates, while financial institutions are grappling with a liquidity crisis.

Borrowers of NBFIs, like banks, received various benefits in repayment of loans for three years from March 2020 to March 2023 due to the Covid pandemic and the Ukraine war.

In the country's banking sector, defaulted loans rose by around Tk24,418 crore in the April-June quarter.

According to central bank data, the total default loan in the banking sector stood at Tk1,56,039 crore in June, which was 10.11% of the total outstanding loans.

"The ratio of non-performing loans to total loans in the banking and financial sector increased at the end of FY23, primarily due to the withdrawal of relaxed loan repayment policies and reduced business activities," Kyser Hamid, managing director of Bangladesh Finance, told The Business Standard.

"NPLs have increased in both the banking and NBFI sectors, with nothing significant reported in the NBFI sector for the last quarter," he added.