Relaxed policy slows down loan recovery

Default loans hit Tk 1.12 trn in Q2

Anisul Islam Noor

12 October, 2019 12:00 AM printer

The amount of default loans in the country’s banking sector stood at Tk 1.12 trillion in the second quarter this year.

Despite the rescheduling of a large volume of loan, the amount of default loans is still alarming for the banking sector and the country’s economy, analysts have said, adding that the implementation of many development projects has slowed down due to shortage of funds.

The banks’ loan recovery drive slowed down in the second quarter of 2019 as many defaulters showed an unwillingness to pay back loans to enjoy the central bank’s relaxed rescheduling facility.

Between April and June, Tk 5,454.25 crore was recovered, down 7.22 per cent year-on-year, according to data from Bangladesh Bank.

Usually, banks go for a strong cash recovery drive before June and December to clean up their balance sheet and paint a rosy picture.

But this time, lenders’ effort has become futile due to the central bank’s relaxed policy, which has given a fresh lifeline to defaulters.

As per the new policy, defaulters will be allowed to reschedule their classified loans by providing only 2 per cent down payment instead of existing 10-50 per cent.

The tenure for repayment is 10 years with a grace period of one year, which is much longer than the existing duration for most of the loans.

Although the BB had announced the extraordinary facilities for defaulters in the third quarter of May, many of the borrowers were aware of it way in advance, said a BB official.

The insufficient recovery has also hit the ongoing liquidity crisis in the banking sector, eroding the banks’ capacity to disburse fresh loans, he said. Talking with the Daily Sun, BRAC Bank chairman and executive director of Policy Research Institute Ahsan H Mansur said the government should take measures immediately to speed up loan recovery or else default loans will increase further in the future.

Willful defaulters should be brought to book with the view to ensuring corporate governance in the banking sector, he said.

The judicial system should be reformed to resolve the pending cases in the money loan courts and vacate the writ petitions in the high court, Mansur said.

Syed Mahbubur Rahman, Managing Director of Dhaka Bank, echoed the same, adding that the government should increase the number of courts and judges to resolve the pending cases involving default loans.

“This will help banks recover default loans within a short period of time,” said Rahman, also the chairman of the Association of Bankers, Bangladesh.