Default loans in the banking sector surged 16.38 per cent year-on-year to Tk 103,274 crore in 2021, rendering the relaxed loan classification policy unveiled by the Bangladesh Bank largely ineffective. Analysts have asked the central bank to take long-term policy measures in order to rein in non-performing loans (NPLs) instead of putting in place short-term steps.
The central bank earlier took various measures, including relaxing the loan rescheduling and classification policies, to get rid of NPLs. But the measures have proved to be ineffective and have not brought any good for the banking sector. The ratio of NPLs to outstanding loans and advances stood at 7.9 per cent last year in contrast to 7.6 per cent in 2020. BB data showed that 47 per cent of the defaulted loans were with the nine state-run banks. NPLs in the state-run banks rose 6 per cent year-on-year to Tk 48,968 crore last year.
Borrowers enjoyed policy support in 2020-21 as the government stepped up to help them withstand the impacts of the pandemic. For instance, the central bank declared a moratorium facility for borrowers throughout 2020 that helped reduce NPLs to Tk 88,734 crore, down 6 per cent from 2019. Under the policy, borrowers were also allowed to avoid slipping into the default zone in exchange for giving only 15 per cent of the total instalments payable last year.
Politically linked influential persons frequently intervene in the loan sanction process of banks, causing the health of banks to worsen. Such interventions should be stopped in order to ensure corporate governance in the banking sector. Default loans might increase further in the second quarter of 2022 as the impact of the withdrawal of the relaxed loan classification policy would take hold. The central bank should adopt policy and measures thus loan defaulters must pay the default loans first before securing new loans, while doing business should be eased.
