The outcome was foreknown. Even the central bank, possibly, was aware of the end-result at the time of issuing its directive relaxing the default-loan rescheduling policy on December 23, 2013.
It did not take too long a time to prove yet another time that loan default culture has gone deep into the country's banking system and any lenient attitude towards the habitual defaulters would only get the banks into deeper troubles.
The size of the classified loans in the banking system, according to the Bangladesh Bank (BB) statistics, was Tk. 405.83 billion at the end of December last year. It surged to Tk 481.72 billion at the end of March last, recording a growth of about 19 per cent in the first quarter of the 2014.
It is feared that the growth of classified loans would continue in the next quarters and the size of the non-performing loans (NPLs) is likely to surpass that of September last.
When the BB had relaxed the loan rescheduling policy to help the businesses 'hit' by the political turmoil during the second half of the last calendar year, a good number of bankers criticized the initiative. However, it became quite clear to the circles concerned that the decision on loan rescheduling relaxation was imposed on the BB from 'above' under pressure from a section of businessmen close to the political power matrix.
To be honest, a good number of banks which also went through troubled times due to stock market collapse and political unrest, were also happy with the BB directive notwithstanding the fact the BB's amended stance had all the potentials of aggravating their difficulties involving classified loans.
The banks found a short-term benefit, in terms of their profitability, in the BB's directive on loan scheduling. In fact for most banks, private and public, the year 2013 was a very difficult one when their volume of business declined and the volume of classified loans soared. Under such a situation, relaxed loan rescheduling provision had offered them an opportunity to show a reduced volume of classified loans which would necessitate a lower volume of provisioning. Such an exercise otherwise created an opportunity to show more than usual profit for the year, 2013. It is suspected that some banks would have been in the red, had there been no relaxation of the loan rescheduling rules.
For instance, the estimated classified loan of a first generation private commercial bank on September 30, 2013 was more than Tk. 24 billion. The amount, surprisingly, came down to Tk.4.32 billion on December 31, 2013. Such a dramatic fall in the volume of defaulted loans of the bank deserves scrutiny by the central bank. Since the volume of NPL of the bank shrank drastically, it needed to keep aside a small amount for provisioning. That also had created an opportunity for the bank to present a relatively healthy balance-sheet to its shareholders.
The default-loan figures of another private bank do also indicate to some form of abuse of the BB's directive on the part of the bank. Its default-loans were reduced by 50 per cent to slightly more than Tk. 5.0 billion on December 31, 2013 from Tk. 10 billion as of September 30, 2013. But in the first quarter of the current calendar year, the size of its NPL again increased by more than Tk.1.5 billion.
The reason for a surge in NPL in the banking system after a 'dictated' decline at the end of 2013 reportedly was due to the failure of a section of borrowers to service their debts on time. But, in the meanwhile, the rescheduling of loans had made them 'clean' borrowers for a brief period and eligible for borrowing more from the same bank or other banks. Only proper investigations can reveal the extent of such borrowing before their becoming defaulters again.
Moreover, a section of errant borrowers reportedly failed to pay the installments in line with the conditions of rescheduling.
Going by the current investment and other major economic indicators, one has ample reasons to believe that no benefit has accrued to the economy out of the facility or the 'help' extended to the businesses through the relaxation of loan rescheduling rules. Rather, the banks are on way to embrace more problems out of it in the coming days.
There is a debate whether the central bank is independent as a regulator or not. It may not have that much of power in the case of state-owned banks since the government has been found rather rigid to maintain its control over those. But as far as monetary policy and credit supervision are concerned, all regulatory powers are vested in the central bank by law. So, it is expected that the central bank would not give in to pressure and avoid taking steps that may complicate things in the banking sector.
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Default loans : Back to square one?
Shamsul Huq Zahid | Published: May 14, 2014 00:00:00 | Updated: November 30, 2024 06:01:00
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