Non-performing loans continue to rise

The volume of non-performing loans (NPLs) in the country's banking system continued to increase as a portion of rescheduled credits also turned classified for borrowers' inabilities to repay the money.
According to official count, the quantum of classified loans increased 11.58 per cent to Tk 572.91 billion in the third quarter (Q3) of 2014 (July-September) from Tk 513.44 billion in the previous quarter of this year.
The amount was Tk 481.72 billion in the Q1 in 2014.
During the Q3, the share of NPLs in the total outstanding loans of the banking system rose to 11.60 per cent from 10.75 per cent in the previous quarter.
It was 10.45 per cent in the January-March period of this calendar year.
The classified loans cover substandard, doubtful and bad/loss of total outstanding credits which stood at Tk 4937.54 billion as on September 30 last, according to the central bank statistics.
In view of the spike, the central bank has already asked the commercial banks for taking effective measures so that fresh loans do not turn idle (NPLs).
"We've asked the banks for taking necessary steps to reduce the volume of classified loans through strengthening recovery drive," SK Sur Chowdhury, deputy governor of the Bangladesh Bank (BB), told the FE Sunday.
He also said the issue will be discussed at the next bankers' meet.
During the July-September 2014 period, the total amount of default loans with the four state-owned commercial banks (SoCBs) rose to Tk 207.97 billion from Tk 197.19 billion in the previous quarter.
On the other hand, the total amount of classified loans with 39 private commercial banks (PCBs) reached Tk 221.94 billion in Q3 against Tk 191.51 billion in the Q2.
The classified loans of nine foreign commercial banks (FCBs) also rose to Tk 16.38 billion from Tk 14.23 billion.
The NPLs with four development-finance institutions (DFIs) surged to Tk 126.62 billion in the Q3 from Tk 110.52 billion in the Q2.
A portion of rescheduled loans has already turned into classified ones as the borrowers have failed to keep their commitments to meet the loan-rescheduling criteria, set by the BB earlier, according to the bankers.
On December 23 last year, the central bank relaxed the loan- rescheduling policy for the next six months to facilitate financing of the businesses affected by political unrest.
A substantial amount of loans was de-classified in December last year following relaxation of the loan-rescheduling policy, they added.
The senior bankers also feared that the volume of classified loans could rise further by the end of this calendar year if the failing on commitments by the borrowers continued.
Ali Reza Iftekhar, chairman of the Association of Bankers, Bangladesh (ABB), does not see any remarkable improvement on the overall classified loan situation in the banking sector in the remaining 45 days of this calendar year.
The chief of the ABB, an apex body of the country's banking professionals, however, said the loan-recovery drive is continuing in line with the BB instructions.
"Our managing directs (MDs) and deputy managing directors (DMDs) are now busy with loan recovery drive rather than procuring new businesses," Mr. Iftekhar, also the chief executive officer and MD of the Eastern Bank Limited, noted.
Talking to the FE, another BB official said: "We're cautious, but not reluctant, with the outcome of classified loans during the period under review."
All classified loans are not default ones, he said, adding that a regular loan falls default after six months of non-repayment.
"There is no problem to provide fresh loan to the borrower whose loan has been identified as substandard," the central banker explained.
Any loan is classified as 'substandard' if it is due or overdue for three months or beyond but less than six months, he added.
The amount of substandard loans rose to Tk 89.48 billion in the Q3 from Tk 72.26 billion in the previous quarter of this calendar year, the BB data showed.

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