Default rate on bank debts drops in Bangladesh. But analysts say the public are being misled

The amount of bad debts in the banking sector has dropped by Tk 16.77 billion to Tk 944.4 billion at the end of September, according to the central bank but analysts have dismissed the data as a dangerous juggling act.

Due to special benefits and allowances, no new non-performing loans were recorded in the third quarter of the fiscal year beginning in January. Meanwhile, some borrowers have repaid their debts on their own initiative, easing some of the burden of default loans on the banking system.

However, analyst Ahsan H Mansur has raised questions about the figure released by Bangladesh Bank. According to him, this 'meaningless' information given by the central bank can only serve to 'mislead' people while putting the banking sector at risk of further turmoil.

Khondkar Ibrahim Khaled, former deputy governor of Bangladesh Bank, believes that by putting off the repayment of huge amounts of bad debts through one concession after another, the central bank is leaving the banking sector open to disastrous consequences.

According to the latest data released by the central bank on Monday, the amount of credit disbursed by banks stood at Tk 10.53 trillion until September, with bad debts accounting for Tk 984.4 billion of the total figure.

Default loans, therefore, represent 8.88 percent of the disbursed loans, down from 9.16 percent in June.

By June, as many 59 banks in the country had disbursed loans totalling Tk 10.5 trillion, of which Tk 961.16 billion went into default.

Ahsan said the banks only provided incentivised loans in the six months from April to September this year due to the coronavirus epidemic, which he attributed to the increase in debt disbursement.

A close look at the Bangladesh Bank data reveals that no default loans have been recovered in the last quarter of the year.

On May 16 last year, the government gave defaulters the opportunity to repay 10 percent of the total loan in 10 years, with a grace period of one year, at 9 percent interest on 2 percent down payment.

Under that 'special' facility, banks have renewed default loans worth around Tk 500 billion until September.

Besides, with the approval of the central bank, a huge amount of bad debts was rescheduled last year. In all, about Tk 1 trillion of loans have been rescheduled.

Apart from this, the banks have written off more than Tk 550 billion of bad debts until September. This means that the money will be deducted from the defaulted account, even though it will not be repaid.

According to another source at the central bank, around 700 loan defaulters have taken a stay order from the courts.

As a result, their names are not mentioned in the Credit Information Bureau (CIB) of Bangladesh Bank as defaulters. The amount of such loans is now around Tk 800 billion.

All in all, the amount of default loans in the country now stands at an estimated Tk 2.5 trillion in total.

Following the outbreak of the coronavirus epidemic in March, the government has given a lot of leeway to borrowers as banks were directed not to classify unpaid loans as bad debts until December. In other words, the classification of any loan cannot be changed throughout the year 2020.

Ahsan Mansur, also chairman of BRAC Bank, said the real sum of default loans was at least two and a half times higher than that provided by Bangladesh Bank.

"The central bank is misleading the people with such meaningless information. This is causing huge damage to our banking sector.”

"I don't know what enjoyment the central bank is getting from showing a reduced figure of bad debts on paper instead of recovering the loans," he added.

He believes that the government is discouraging ‘good’ borrowers from repaying loans by repeatedly letting defaulters off the hook.

The International Monetary Fund's (IMF) report on Bangladesh's banking sector in November last year 'hit the nail in the head', according to Ahsan.

Khondkar Ibrahim Khaled, a former deputy governor of the Bangladesh Bank, speaks at a roundtable titled 'Developing Bangladesh: The Challenges Ahead' organised by Ekattor Television at a Dhaka hotel on Saturday. Photo: mostafigur rahman

The IMF had said that a certain class of people in Bangladesh have a deep-rooted tendency to default on loan repayment, adding some well-connected businessmen do not feel any urge to repay their debts, with decisions in the financial sector in Bangladesh now being dictated by influential and powerful borrowers.

"I thought that the IMF report would be an eye-opener for the government. But now I see that nothing has happened,” said Ahsan.

Former deputy governor Ibrahim said, "I don't understand what the central bank is doing. There is a kind of anarchy going on in the banking sector. ”

Expressing displeasure over the various opportunities being given to loan defaulters, he added, “The government is giving one benefit after another to the defaulters. But the condition of the banks is getting worse by the day.

"The government is giving concessions and chances to a select group of people, for which the banking sector is suffering. No-one is repaying the huge amounts of default loans on the pretext of the coronavirus. I have no idea whether this money will be recovered at all."