NEWS media reported that the commercial banks in 2017 waived Tk 1,753cr interest against bad loans which is blamed responsible for recurring bad loans in the country. Experts warned that such waiver was unethical and had impacts on good borrowers adversely. The interest waiver also encourages regular defaulters as they will think they too can get waivers of interest periodically on their loans.
This huge exemption of interest on bad loans indicates that banks did not follow due diligence while sanctioning the loans, especially in the last few years. The situation deems that the banks are compelled to give exemption so that they can recover the principal amount of loans. The unhealthy condition in the banking sector is long prevailing and the government is allowing freefall of the sector by remaining reluctant and politicizing it.
According to Bangladesh Bank, the banks in 2016 waived Tk 764 crore which jumped to Tk 1,753 crore in 2017, more than double indeed. Private commercial banks waived interest of Tk 1,234 crore last year, up from Tk 451 crore a year earlier while interest waived by the six state-owned banks Sonali, Janata, Agrani, Rupali, BASIC and Bangladesh Development Bank soared 61 percent year-on-year to Tk 319 crore last year. Interest waived by the nine foreign banks increased 4.45 percent to Tk 6.80 crore in 2017. The practice of giving waiver erodes the banks’ net profits and also creates a provisioning shortfall. Experts opined that the central bank should strengthen its monitoring on the issue so that no bank can exempt loans or interests willfully.
Banks are allowed to give exemption to borrowers in line with the central bank directives but such facilities are usually managed by the willful defaulters. Banks generally waive interest on grounds of bank-customer relationship to recover the defaulted loans quickly, but the banks should not deduct the cost of fund while waiving the interest. In our view, full interest waiver is not expected for a particular client as it will not bring any good outcome. We ask the central bank to limit the opportunity and loan rescheduling facility for some definite conglomerates blessed by the government, and force them complying banking rule.
This huge exemption of interest on bad loans indicates that banks did not follow due diligence while sanctioning the loans, especially in the last few years. The situation deems that the banks are compelled to give exemption so that they can recover the principal amount of loans. The unhealthy condition in the banking sector is long prevailing and the government is allowing freefall of the sector by remaining reluctant and politicizing it.
According to Bangladesh Bank, the banks in 2016 waived Tk 764 crore which jumped to Tk 1,753 crore in 2017, more than double indeed. Private commercial banks waived interest of Tk 1,234 crore last year, up from Tk 451 crore a year earlier while interest waived by the six state-owned banks Sonali, Janata, Agrani, Rupali, BASIC and Bangladesh Development Bank soared 61 percent year-on-year to Tk 319 crore last year. Interest waived by the nine foreign banks increased 4.45 percent to Tk 6.80 crore in 2017. The practice of giving waiver erodes the banks’ net profits and also creates a provisioning shortfall. Experts opined that the central bank should strengthen its monitoring on the issue so that no bank can exempt loans or interests willfully.
Banks are allowed to give exemption to borrowers in line with the central bank directives but such facilities are usually managed by the willful defaulters. Banks generally waive interest on grounds of bank-customer relationship to recover the defaulted loans quickly, but the banks should not deduct the cost of fund while waiving the interest. In our view, full interest waiver is not expected for a particular client as it will not bring any good outcome. We ask the central bank to limit the opportunity and loan rescheduling facility for some definite conglomerates blessed by the government, and force them complying banking rule.
