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NPL volume: Hard to contain

Shamsul Huq Zahid | March 04, 2022 00:00:00

The burden of default loans of the country's banks became even heavier in 2021 despite the relaxed approach pursued by the central bank in the last two years to help businesses withstand the onslaught of the pandemic.

The ratio of default loans in the total outstanding loans of the banks increased by 0.3 per cent to 7.9 per cent or Tk 1,033 billion at the end of the last calendar year.

Between 2012 and 2019, the ratio was much lower. The share of classified loans rose to 12 per cent in 2019. The same, however, slid to 7.6 per cent in 2020 because of the pandemic-related policy supports.

After many years, the volume of soured loans shrank in 2020, mainly because of the relaxation of loan classification by scheduled banks. The central bank declared a moratorium facility for borrowers throughout that year. The Bangladesh Bank (BB) pursued a relaxed policy also in 2021. Borrowers could remain cleaned by paying only 15 per cent of the total payable loan instalments last year.

The rise in the volume of default loans at the end of 2021 shows many borrowers did not/ could not service their bank debts despite the relaxation of the loan classification system. The banks disbursed a substantial amount as part of the Covid stimulus packages. A part of that had fallen due. Borrowers concerned might have defaulted on repayment of the same.

The size of the non-performing loans (NPLs) with the country's banks is huge. The actual amount will be even bigger if the written-off loans and waivers are considered. It might shoot up to Tk1.2 trillion.

There is no denying that the volume of classified loans had reached an alarming proportion even before the pandemic in the absence of any serious approach to rein in the same from the quarters concerned.

The soft approach taken during the pandemic has made the situation even worse. A section of habitual or delinquent borrowers has taken advantage of the situation. It is now proven that some influential borrowers can stall many regulatory measures and manage new schemes to remain afloat.

The prevailing situation with default loans in the banking sector is the outcome of the failure of all the relevant parties---banks, regulators and government.

The ratio of NPLs in 2019 was 19 per cent of the total outstanding loans. The actual ratio would, naturally, be much higher.

With all restrictions lifted following the easing of the pandemic situation, economic activities have started in full swing. In such a situation, the banks are supposed to go back to the usual system of loan classification. So, if a normal situation prevails, one would get a clear picture of the NPL situation either at the end of the second or last quarter of 2022, provided there is no new move to manage fresh concessions and banks are ready to publish the true size of their soured loans.

Factors such as political influence used in loan sanctioning, failure to make the banks' boards accountable and absence of decisive actions to recover NPLs have helped accumulation of the huge bad debts.

One has ample reasons to believe that the picture that is available about the financial health of the country's banks is not the real one. The presence of many banks has made the situation truly difficult. Yet the central bank must try to get the hard fact and start corrective actions.

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