The amount of classified loans in the country's banking system increased significantly in the first quarter (Q1) of 2014 due mainly to the lack of proper monitoring and supervision of rescheduled loans.
The volume of default loans increased by 18.70 per cent to Tk 481.72 billion in the January-March period of 2014 from Tk 405.83 billion in the previous quarter of the last calendar year.
The central bank will ask the commercial banks to reduce the amount of classified loans by strengthening their respective recovery drive.
During the first quarter, the share of non-performing loans (NPL) in the total outstanding loans of the banking system increased by 1.52 percentage points.
The share of the classified loans rose to 10.45 per cent in the period under review from 8.93 per cent in the previous quarter, according to the central bank statistics.
"We'll ask the banks for taking effective measures to bring down the share of NPL at below 10 per cent by the end of second quarter," S K Sur Chowdhury, deputy governor of the Bangladesh Bank (BB), told the FE on Monday.
He also said the central bank will not continue the relaxation of loan rescheduling policy after June this year.
On December 23 last year, the central bank relaxed the loan rescheduling policy for the next six months to facilitate financing for the businesses, affected by political unrest.
The amount of default loan dropped significantly in the last quarter of 2013 as a substantial amount of loan was rescheduled by the banks taking advantage of loan rescheduling policy relaxation, according to a BB senior official.
As of December 31 last year, the banking sector's total classified loans came down to Tk 405.83 billion from Tk 567.20 billion on September 30 last year, following relaxation of the loan rescheduling policy.
The central banker also said a portion of the rescheduled loan has already turned into classified ones because of weak monitoring and supervision by the commercial banks.
"Improper rescheduling of genuine default loans coupled with absence of proper monitoring and supervision by some banks might be one of the main reasons for the rise in the NPL in the first quarter of this calendar year," Helal Ahmed Chowdhury, managing director and chief executive officer of the Pubali Bank Limited, explained.
He also said the banks will have to strengthen their monitoring and supervision for improving the overall loan classification situation in the banking sector.
"We expect that the volume of classified loan would decline in the coming quarters due to the gradual improvement in the overall business environment, provided the clients of rescheduled accounts act accordingly," Mr. Chowdhury, also vice-chairman of the Association of Bankers, Bangladesh, noted.
However some bankers said there is a little possibility of fall in the volume of default loans in the months ahead if necessary steps are not taken by the BB to this effect.  Â
During the period (January-March 2014), the total amount of default loans with the four state-owned commercial banks (SoCBs) rose to Tk 186.89 billion from Tk 166.06 billion.
On the other hand, the total amount of classified loans with 39 private commercial banks (PCBs) reached Tk 185.29 billion from Tk 143.16 billion.
The classified loans of nine foreign commercial banks (FCBs) came down to Tk 12.27 billion from Tk 13.03 billion.
The default loans with four development finance institutions (DFIs) rose to Tk 97.27 billion in the first quarter from Tk 83.57 billion in the fourth quarter of the last calendar year.
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