Default loans will 'double' in six months, BB governor warns

The amount of default loans may reach 25-30 percent, the central bank chief says

Bangladesh Bank Governor Ahsan H Mansur has warned that default loans in the banking sector could surge nearly two times over the current amount within the next six months.

"Now it's our job to figure out how to reduce it. It's a big challenge for us," he said, after submitting a White Paper report on the country’s economic situation to Chief Advisor Muhammad Yunus on Sunday afternoon.

The interim government chief’s Press Secretary Shafiqul Alam has shared the video of the governor's speech on his Facebook page.

The video shows the governor saying, “The picture of the financial sector shows that the amount of default loans will reach 25-30 percent.”

“Currently, the official rate is 12.5 percent. It may climb to 15 percent next month, then 17 percent, and gradually reach 25-30 percent in six months."

The latest data until September published by the central bank on Nov 17 showed that 17 percent of the loans disbursed had already defaulted although the governor says the current default rate is 12.5 percent.

Of this, about Tk 740 billion has increased in the past three months from July to September, during which the transitional government was in power for about two months.

Default loans have never increased so much in any quarter in the country’s history.

Bangladesh Bank Assistant Spokesperson Shahriar Siddique stated two reasons to bdnews24.com.

He said, "A lot of policy changes have been made. In 2019, a special facility was given in the calculation of loans. Many overdue loans were not counted until six months from the last date of payment. It has been reduced to three months in consultation with the IMF [International Monetary Fund]. This will be counted from the day after the payment of the instalment from March next year.”

"Because of this change, those outstanding instalments have become defaulted loans. If the previous policy was in force, the default loans would not have increased so much."

Shahriar pointed out that many writs pending in the court regarding the issue have been dismissed, citing this as the second reason for the increase in default loans.

‘INCREASED A LOT SINCE 2017’

The governor said, “Half of these defaulted loans came from big 'scams'. Some influential groups and businessmen, including S Alam Group and former land minister Saifuzzaman Chowdhury, are involved in it. The amount is estimated to be over Tk 2.5 trillion.”

"The number of such borrowings started rising after 2017. The money was later siphoned off after being taken as loans from the banking channel."

Ahsan also highlighted measures to bring down default loans.

"We need to increase our academic capacity and encourage banks to enforce regulation and follow the rules.”

"We will examine the asset quality of banks through international institutions. The process will begin on Dec 11. Initially, 12 banks will be audited followed by 20 others. The real picture will emerge through this."

Noting that a ‘political decision’ would be needed to decide the banking sector's future, he said: “We will definitely take necessary steps to protect depositors."

"The bankers asked whether the banks would be saved or not. I said, it is not my responsibility to protect the bank, but the deposit will be protected. The banks have been given liquidity support. We expect it will be possible to restore the customers’ trust through the aid."