THE writing-off defaulted loans by state-owned banks has become part of our moribund banking system under political shelter when the banking sector is struggling to somewhat stay in business. News report said Bangladesh Bank (BB) has asked all scheduled banks to send details of their written-off loan accounts as the number of default loans and subsequent rise in capital shortfall soared over the recent past. It appears that BB has come up with the directive as most banks are indiscriminately writing-off their bad loans violating the central bank’s loan portfolio guideline.
Meanwhile, with huge amounts of defaulted loans, eight state-owned banks and ICB Islami Bank faced capital shortfalls of Tk 16,657 crore as of June 30 this year. It is alarming for the central bank. But what is noticeable is that despite the phenomenal rise in default loans mainly in state-owned banks (SOBs) the government is rather injecting fresh capital in those banks from budgetary allocations. It is avoiding legal actions to recover bad loans and punish corrupt bank officials who are helping big defaulters to continue without repaying the loans.
As the loan write-off increased considerably in the last one year, the BB has sought information on bad loans and wanted to know what action banks have taken to recover the loans. The move will help to determine whether banks have violated loan regulatory norms. Meanwhile, the cumulative loan write-off by SOBs rose by nearly Tk 200 crore to Tk 41,437 crore during the first quarter of the current fiscal year.
The capital base of the nine banks in the second quarter of this year has further declined when non-performing loan increased. The situation then worsened when the banks rescheduled and restructured large amount of defaulted loans that artificially increased their capital base. The BB data showed that defaulted loans in the banking sector increased to Tk 63,365.28 crore as of June 30 from Tk 59,411.44 crore as of March 31 of this year. The capital base in the banking sector would weaken more if the defaulted loans continue to rise.
As it appears the SOBs are now operating from their sickbed. Most big banks have been robbed and left empty and instead of taking legal actions against swindlers to recover money the government is politicizing banks and its loan operations for buying loyalty of business people. We would like to say unless the government is honest to establish good governance in banking things will only worsen. Without appointing competent professionals to run banks and make the system accountable, the chance is very slim to recover bad loans. It will only grow over time. In our view the government must use Artha Rin Adalat to reduce bad loans to improve the capital base of those banks in the public sector; here banks and politics can’t go together.
Meanwhile, with huge amounts of defaulted loans, eight state-owned banks and ICB Islami Bank faced capital shortfalls of Tk 16,657 crore as of June 30 this year. It is alarming for the central bank. But what is noticeable is that despite the phenomenal rise in default loans mainly in state-owned banks (SOBs) the government is rather injecting fresh capital in those banks from budgetary allocations. It is avoiding legal actions to recover bad loans and punish corrupt bank officials who are helping big defaulters to continue without repaying the loans.
As the loan write-off increased considerably in the last one year, the BB has sought information on bad loans and wanted to know what action banks have taken to recover the loans. The move will help to determine whether banks have violated loan regulatory norms. Meanwhile, the cumulative loan write-off by SOBs rose by nearly Tk 200 crore to Tk 41,437 crore during the first quarter of the current fiscal year.
The capital base of the nine banks in the second quarter of this year has further declined when non-performing loan increased. The situation then worsened when the banks rescheduled and restructured large amount of defaulted loans that artificially increased their capital base. The BB data showed that defaulted loans in the banking sector increased to Tk 63,365.28 crore as of June 30 from Tk 59,411.44 crore as of March 31 of this year. The capital base in the banking sector would weaken more if the defaulted loans continue to rise.
As it appears the SOBs are now operating from their sickbed. Most big banks have been robbed and left empty and instead of taking legal actions against swindlers to recover money the government is politicizing banks and its loan operations for buying loyalty of business people. We would like to say unless the government is honest to establish good governance in banking things will only worsen. Without appointing competent professionals to run banks and make the system accountable, the chance is very slim to recover bad loans. It will only grow over time. In our view the government must use Artha Rin Adalat to reduce bad loans to improve the capital base of those banks in the public sector; here banks and politics can’t go together.
