A media report has said default loans in the country’s banking system surged at Tk 99,205 crore in the first half of 2021 in June as borrowers struggle to pay back due to the business slowdown amid the pandemic. Non-performing loans (NPL) were up 11.80 percent, Bangladesh Bank figures show. The situation developed as the central bank lifted the loan moratorium facility, which had prevented downgrading of the credit status of borrowers who failed to pay instalments regularly last year. Although banks pursued a relaxed policy on loan classification until August this year, it failed to rein in upward trend of the default loans.
As it appears, the actual defaulted bank loans would have been more than Tk 1.51 lakh crore this time if the Tk 53,258 crore loans written off by banks were taken into account. Moreover, recovery of another Tk 80,000 crore in loans has remained stalled due to court proceedings. Before the coronavirus outbreak the Bangladesh Bank in 2019 granted a loan rescheduling policy to contain the soaring default loans that increased to Tk 1,16,288 crore at the end of June that year. In fact the government is using various policy measures to contain default loans, otherwise the figure would have been much higher. Again, as we see under a businessman finance minister who is very accommodative of big borrowers, the central bank is using every pretext such as loan moratorium and loan rescheduling to keep the real default loans down to an acceptable level.
It appears that despite Bangladesh Bank’s hope that borrowers would be able to avoid the default zone by repaying 20 percent of their loan instalments payable by June, it did not work much. Despite the central bank’s relaxed repayment policy due to business slowdown amid the pandemic, the non- performing loans continued to soar in June this year compared to March when the volume was about Tk 4,000 crore less.
The bad loans accounted for 8.18 percent of the total outstanding loans in June. Evidently the upward trend of non-performing loans indicates that economic recovery is yet to get momentum. It appears that many borrowers are taking advantage of the relaxed outlook of the central bank to continue remaining defaulters compared to those who are really in trouble. We believe that the central bank should take strict measures against those habitual defaulters. They are the ones particularly in the category of big borrowers who are responsible for the current surge in default loans. We would say the central bank should continue a relaxed approach towards small and medium enterprises as they are going through dire straits since the start of the pandemic. But waivers, exemptions or relaxation of policy should not be the remedy because delinquent defaulters must start repaying to bring down default loans.
