Photo : Collected
The banking sector of the country has experienced a significant improvement following the national elections. Over a span of three months, defaulted loans have diminished by Tk 9765 crore.
According to an updated report from Bangladesh Bank (BB), during the second quarter of the fiscal year 2023–24, defaulted loans decreased notably from October to December. This positive trend is attributed to many defaulters clearing their loans to become eligible to participate in the national elections.
Additionally, numerous individuals have chosen installment loans to maintain a clear Credit Information Bureau (CIB) record, consequently leading to a reduction in defaults.
As per the BB data, the amount of defaulted loans stood at Tk 145,633 crore at the end of December, constituting 9 percent of the entire bank loan portfolio.
During this period, the total debt amounted to Tk 1,617,688 crore. Notably, defaulted loans decreased by Tk 9765 crore over three months, from Tk 155,398 crore in the September quarter, which accounted for 9.93 percent of total bank loans.
However, it's essential to note that defaulted loans have been on the rise over the past year. In December of the fiscal year 2022–23, defaulted loans amounted to Tk 120,656 crore. This fiscal year, there was a significant increase of Tk 25,000 crore in defaulted loans compared to the previous fiscal year.
Bangladesh Bank officials emphasise the necessity of reducing debt in light of the country's overall situation. Meeting one of the conditions for receiving International Monetary Fund (IMF) budget support funds required a reduction in game debt. Maintaining creditworthiness was crucial, and strict monitoring and supervision by Bangladesh Bank prevented an increase in defaults this quarter.
Md. Mezbaul Haque, the spokesperson and executive director of Bangladesh Bank, emphasised that reducing defaults was a priority for the institution regardless of IMF conditions. Speaking to The Daily Messenger, he stated, “We planned to reduce defaults at any cost. We worked on a challenge. There is no IMF issue here. Yes, they have given many conditions to get the loan. One of them was the reduction of defaulted loans. Even if they did not give conditions, we would work to reduce defaulted loans.”
Furthermore, Mezbaul highlighted the determination of the current governor to implement reforms in the economic sector. He added, “Our current governor expressed his determination to bring reforms to the economic sector right after assuming office. We are also working on sales. We have worked seriously on how to reduce instability in banks and recover defaults.”
On the other hand, a top official of Bangladesh Bank, speaking anonymously to The Daily Messenger, acknowledged that election-related defaults contributed to the reduction in loans. The official explained, "Election defaults are one of the reasons for reducing loans."
He noted that influential individuals sometimes avoid repaying loans but regularise them to avoid complications with the Credit Information Bureau during elections. However, the amount involved in this regularisation was relatively small, amounting to Tk 10 thousand crore. The official also underscored the significant role of the IMF in prompting these actions, stating, "The IMF certainly has a big role behind it. Because of their conditions, we are also shaken. I have increased supervision in banks than before.”
At the conclusion of the December quarter of the current financial year, defaulted loans from state-owned banks decreased by a marginal Tk 16 crore. Agrani Bank, in particular, stands out with the highest number of defaulted loans. The total disbursed loan amount of the bank is Tk 69,904 crore, with Tk 18,095 crore in default, constituting 25.89 percent of disbursed loans. Similarly, Janata Bank's disbursed loan amount is Tk 91,158 crore, with Tk 17,501 crore in default, accounting for 19.20 percent of the total loan.
On the other hand, the total default amount of private sector banks stands at Tk 70,981 crore, a decrease of Tk 10,556 crore compared to the previous quarter. National Bank holds the highest amount of defaulted loans at Tk 12,368 crore. However, there has been a decrease in the bank's defaults compared to the previous quarter, where it defaulted at Tk 13,514 crore, reflecting a reduction of Tk 1,146 crore in three months.
Meanwhile, defaults from foreign banks operating in Bangladesh have also declined. In the previous quarter, the default amount from foreign banks was Tk 3,286 crore, which decreased to Tk 3,200 crore in this quarter, indicating a decrease of Tk 86 crore in three months. Additionally, the defaulted loans of state-owned specialised banks stood at Tk 5,669 crore, with defaults from only three banks increasing by Tk 892 crore in three months.
Dr. Zahid Hussain, former lead economist of the World Bank, expressed concerns to The Daily Messenger regarding the lack of visible initiatives to address bad debts and the ineffective actions by the central bank. He stated, "We have no visible initiative to stop the bad debts. There is no effective action by the central bank. However, I don't know how accurate the reduction in defaults is. However, the picture of the defaulter that appears is not the real picture. The real picture will be darker and bigger.”
Zahid highlighted the potential motivations behind the reduction in defaults, suggesting that some customers may have paid off their loans due to the election or to meet conditions for obtaining an IMF loan. However, he emphasised that despite providing repeated opportunities for customers to repay loans, there hasn't been significant improvement.
The economist criticised the lax enforcement of regulations, stressing the need for stricter enforcement, and advocated for a level playing field in loan disbursement and repayment, stating, “Loan disbursement and loan-taking should be seen with the same eyes. In short, there should be a level playing field. On the one hand, loans are not being collected in the banking sector, and they are also being distributed; in this way, defaults will not decrease.”
Messenger/Disha
