Central Bank Steps Up Pressure to Reduce Defaulted Loans

Bangladesh’s central bank has issued fresh directives to the chief executives of all banks in an attempt to curb the persistent rise in defaulted loans. Despite offering several facilities, including loan rescheduling, write-offs and one-time settlement arrangements, the volume of non-performing loans has not declined to a satisfactory level. The central bank has therefore demanded explanations from the banks and instructed them to bring down defaulted loans significantly within the current month.

The instructions were given during a bankers’ meeting held on Sunday at the central bank. The session was attended by the governor, Ahsan H. Mansur, deputy governors and the managing directors and chief executive officers of various commercial banks. According to information presented at the meeting, defaulted loans have increased by approximately Tk 4.5 trillion since the fall of the previous government. Alongside loans issued through irregularities and corruption, many absconding borrowers and even honest entrepreneurs have defaulted for various reasons. Stricter lending policies have also contributed to the rise in non-performing loans. As a result, the central bank is now urging banks to intensify their efforts to tackle the crisis. Concerns were also expressed regarding the declining growth of credit in the agriculture and SME sectors, and banks were advised to increase lending in these areas.

Data presented at the meeting shows that, as of June this year, loans of Tk 50 crore or more—including those to 50 major industrial groups—amount to Tk 10.52 trillion, representing 62.59 percent of total loans. Seventy-seven percent of total defaulted loans are stuck with large borrowers. Against these loans, available collateral is only Tk 2.85 trillion, representing just over a quarter of the total exposure.

The meeting also noted that defaulted loans have risen swiftly after the political transition. As a result, banks have intensified recovery efforts and filed an increasing number of cases. Between April and June this year alone, banks filed 14,652 cases to recover nearly Tk 970 billion in defaulted loans. In total, more than Tk 4.07 trillion remains locked in ongoing cases. As of June, the number of cases in money loan courts stood at 222,341.

Banks were advised to work towards eliminating stay orders in loan recovery cases. The number of money loan courts has been increased from four to seven to expedite case resolution. Banks have also filed cases against most of the absconding borrowers.

A report was also presented regarding special rescheduling facilities under which borrowers can regularise loans for ten years by depositing only two percent of outstanding amounts. The five-member committee has received 1,516 applications involving Tk 1.96 trillion. Among them, the top 20 business groups alone sought rescheduling for over Tk 1.10 trillion. The central bank has resolved 900 applications from 300 borrowers, while banks have rescheduled Tk 26,114 crore against 250 applications. As a result, defaulted loans have decreased by Tk 13,747 crore.

KhaborwalaAJ