Thursday, 20 January, 2022
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Strictly Hold the Reins of Defaulting Loan

Md. Zillur Rahaman

Strictly Hold the Reins of Defaulting Loan

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At present, the banking sector of Bangladesh is going through a challenging time because of three major challenges: the large-scale dormant defaulting loans, the implementation of single-digit interest rates and the challenge of the post-Covid-19 economic downturn. Actions have to be taken considering both the pre-Covid-19 situation and the Covid-19 period. Naturally, these functions are not so easy. For the desired success, the question of sincerity, efficiency, the competence of all the stakeholders, as well as the transparent, ethical, positive attitude are essential. The need for systematic and accountable management of the whole process is also seriously considered.

Despite the various challenges, the latest data released from Bangladesh Bank shows that the total loan disbursements of the banks till September 2021 is Tk. 11836.03 billion and the default loan is Tk. 1001.68 billion, which is 8.46 per cent of the total loan. The default loan has jumped by Tk 56.26 billion in one year. In September of the same period last year, the default loan of banks was Tk. 944.40 billion. In 2019, for the first time in the country's banking history, default loans exceeded Tk. 1 trillion. In March of that year, the defaulted debt was Tk. 1108.73 billion, and in September, it stood at Tk. 1162.88 billion. Since the non-payment of loan repayment facility was given in 2020, the number of default loans was reduced that time. In December 2020, it was Tk. 887.34 billion. After that it started increasing again and, at the end of last September, it stood at Tk. 1001.68 billion.

In fact, the country's banks are unable to get out of the circle of defaulting loans. Bank default loans are going out of control due to corruption, irregularities, political influence in the disbursement of loans, lack of good governance, loosening of control of the central bank, etc. However, the swollen image of default loans is a big omen for the country's banking sector, business and trade.

According to the latest data of Bangladesh Bank, the lion's share of default loans belongs to state-owned banks. Janata Bank has Tk. 138.37 billion which is 14 per cent of the total default loan, while Sonali Bank's Tk. 102.94 billion is 10 per cent, Agrani Bank's Tk. 78.72 billion is 8 per cent, BASIC Bank's Tk. 76.19 billion is 7.50 per cent and the private AB Bank’s Tk. 53.33 billion is 5 per cent of the total default loans. According to the central bank, the default loans of state-owned commercial banks are Tk. 440.16 billion, which is about 44 per cent of the total amount. The default amount of the three specialised banks is Tk. 36.99 billion and the others private banks have Tk. 501.55 billion.

One of the reasons default loans increasing day by day is not taking appropriate action against the defaulters in time. Due to a handful of dishonest officials and political influence and dominance in the banking sector, the picture of defaulting loans is being tarnished. The Covid-19 has made this situation more fragile as it was decided that no legal action would be taken to recover the debt during that time. There is no doubt that due to the dominance of a handful of dishonest officials and political vicious circle, various irregularities and corruption spread the defaulting loans. However, ensuring accountability could have reduced the risk of default loans since lack of accountability is known to be one of the major reasons for large-scale loan scams at Sonali Bank, BASIC Bank and some other banks. In our society, the tendency to not pay off debts has become a kind of subculture. The proliferation of defaulting loans is severely weakening the foundations of banks and reducing efficiency and profit.

When the incumbent government was formed in 2009, the total default debt in the country was only Tk. 224.81 billion and now it is Tk. 1001.68 billion. There was a time when deposited money in a bank would be double in just six years. But the depositors no longer have that roar. Debt defaulters have taken that place. As a result, default loans have increased almost five times in just 12 years and if the concealed written-off debt is taken, it will go close to Taka one and a half trillion. The amount of debt concealed written-off so far is about Tk. 460 billion. It can be called a secret default loan. Moreover, a huge amount of default loans are covered by rescheduling and remain unpaid year after year.

There is no alternative but to increase the supervision and surveillance over the banks and take strict legal action against the defaulters. It is necessary to think about the issue of making stricter laws without wasting time. At the same time, if disciplined and good governance are not established in the banking sector, the number of default loans will continue to scale up creating a deeper crisis for the future. In addition to delays in case resolution, the impact of good governance is one of the major problems in the banking sector.

In order to settle the case of defaulting loan, it is necessary to have a timely law and also to make arrangements for the settlement of the case by forming a special bench. These cases have become difficult to settle in time only in the Artha Rin court. Many discussions about defaulting loans are being criticised, but how much work has been done is a question. The government should ensure the security of public deposits as well as consider the banking sector loan safety.

The biggest problem of our country's banking sector is excessive defaulting loans. However, it is also true that defaulting debt is not the only problem of our country, but it is a global problem. All countries in the world have default loans. Many are aware of the US subprime mortgage default debt scandal. The recent spate of bankruptcies in India's banking sector has taken everyone by surprise. The central bank of India is strong enough and has considerable control and power over commercial banks. So there was no high rate of default. Despite many steps being taken in Greece and Italy in Europe, their banking sector is still struggling with defaulting loans.

According to the banking sector, the debt collection of the banks has been declining because of the Covid-19. During this time, many businesses and manufacturers are unable to sell their products that reduce their income. As a result, they are unable to repay the loan. Many private-sector employees have not been able to repay their individual loans due to declining income. Many people are also in arrears of house loans as their houses are vacant. Naturally, default loans are increased. Despite the ability of many, Bangladesh Bank is not paying the money on purpose due to laxity. Moreover, the banks have not been able to take any tough steps or legal action to recover the loans. On the other hand, as the court has been closed for a long time, the previous case is also not gaining any momentum. As a result, many defaulting customers are spending their time in comfort. Due to the special instructions and concessions of Bangladesh Bank, the default loans were hidden like a dormant volcano during the Covid-19 period, which later erupt lava. However, these dormant defaulting loans are a huge challenge for the banking sector and the economy, and therefore the authority needs to be tightened anyway to recover the default loan.

 

The writer is a Banker and Freelancer