Almost one-third of the total default loans are now stuck in trade-financing and banks are in deep trouble with their recovery. Â
The trade-financing covers credits for export and import, apparel and clothing and loan against trust receipt (LTR).
More than 32 per cent or Tk 131.20 billion of the total Tk 406.4 billion non-performing loans (NPL) were concentrated in trade-financing sectors in 2013, according to the central bank statistics.
Officials at the Bangladesh Bank (BB) have, however, identified such concentration as 'moderate'. It is quite distant from the upper limit for moderate concentration, they say. But concentration of loans is higher in the case of business groups than that of sector-wise loans.
 "Around 40 per cent of outstanding loans are held by 30 to 40 business groups in Bangladesh," a BB senior official told the FE.
He made the disclosure in reply to a query about the existing trends in loan concentration into few pockets of the financial sector.
The BB official said some business groups are also involved in the banking business that has heightened the level of risks in trade-financing.
 "Default-loan concentration in trade financing increased because of large-scale financial irregularities, such as in Hall-Mark and Bismilla Groups, alongside price fluctuations of commodities in local and global markets," the central banker explained.
The highest level of default loan concentration has taken place in the readymade garment (RMG) and textile sectors, standing at 16.70 per cent in 2013.
It was followed by 7.2 per cent and 3.5 per cent respectively in import loans and export credits, the BB data showed.
The BB official also said the central bank is now working to ensure credit discipline in the country's banking sector through strengthening its monitoring and supervision.
Country's senior bankers suggested the authorities concerned should take effective measures to curb such loan concentration immediately.
This is seen by them as an imperative for ensuing stability in the baking system.
They also sought cooperation from the country's business community for improving financial health of the banks through reducing the volume of NPL.
 "It's not a good sign for the banking system. It should be addressed immediately to ensure stability in the sector," S.M. Aminur Rahman, advisor of the Union Bank Limited, told the FE.
Regarding the LTR, Mr. Rahman, also former chief executive officer (CEO) and managing director (MD) of the state-owned Janata Bank Limited, said such loan should be monitored strongly by individual banks as per terms of conditions.
Talking to the FE correspondent, Nurul Amin, CEO and MD of Meghna Bank Limited, said the flow of credit increased to the trade-financing sectors recently because of the lower demand for loans from the real or manufacturing sectors.
 "Actually, most of banks have invested their funds in trade financing to meet the growing demand from the businessmen," Mr. Amin, also former chairman of the Association of Bankers, Bangladesh (ABB), said to explain how the financing priority shifted.
Helal Ahmed Chowdhury, CEO and MD of Pubali Bank Limited, urged the businessmen and bankers to take necessary measures to downsize the volume of NPL to keep the stability in banking system continuing.
The senior bankers' appeal came against the backdrop of upturn in the NPL in the banking sector in the second quarter of the current calendar year.
The volume of default loans increased 6.58 per cent to Tk 513.44 billion as of the April-June period of 2014 from Tk 481.72 billion in the previous quarter.
During the second quarter, the share of NPL in the total outstanding loans from the banking system rose to 10.75 per cent from 10.45 per cent in the January-March period of 2014.
 "We need a sound banking system for achieving optimum economic growth," said Mr. Chowdhury, also vice-chairman of the ABB.
Meanwhile, the LTR has been identified as more risk-prone item under the trade-financing areas--and the possibility of recovering such loans is apparently very low.
 "We see that the possibility of recovering such loans is apparently very low due mainly to the lack of adequate mortgage and fluctuation of prices of unsold goods," another BB official observed.
Total LTR stood at Tk 379.6 billion in 2013, which was 8.1 per cent of total outstanding amount in the banking system. Of the amount, Tk 19.6 billion turned classified as the money was not repaid timely.
Opening letter of credit (LC) for essential commodities, industrial items and trading purposes and getting loan against such LC is called LTR.
The loan against a trust receipt is provided to a client when the documents covering an import shipment are given without payment.
Under this system, the clients hold their sales proceeds in trust for the bank, until the loan allowed against the trust receipt is fully paid.
Talking to the FE, a senior executive of a leading private commercial bank (PCB) said a major portion of the LTR was from the country's port city, Chittagong, where commodity traders took the loans from different banks for a short period.
 "But later they failed to pay the loans in time, and at one stage those LTRs converted into term loans," he noted.
The private banker also said the top management of most banks are visiting Chittagong frequently for strengthening their drives for recovery of the piled-up bad loans.
The central bank is conducting a survey to gauge the extent of LTR given by the banks against LCs and identify malpractices involvrf in it.
One kind of evil competition has been observed among different bank branches in case of LC opening and providing LTR facilities against large groups in order to meet their profit target at the branch level, according to preliminary findings of the survey.
It also says sometimes bank branches open LC and provide LTR facility as instructed by banks' head offices.
Such directed lending creates a problem for branch managers in making assessment of their clients. As a result, the LTR is not adjusted and gets defaulted at one stage.
The survey team found out that the large importers (mostly defaulters) are taking stay order from courts. As a result, they get clean Credit Information Bureau (CIB) report to be eligible for further trade financing.
 "This is a big obstacle to the recovery of LTR and term loan in the banking sector," a survey team member told the FE about tangles.
He also said that the team is working to finalise the survey report by November.
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