Non-performing loans hit Tk 145b, belying policy safeguard

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In the shadow of recent financial troubles, classified loan accumulations in Bangladesh’s banking system jumped by more than 16% or 145.40 billion taka in the last calendar year.

Such slippage is taking place despite central bank policy support – through the rescheduling of non-performing loan repayments, the cancellation process, and so on.

The volume of non-performing loans or NPLs rose to 1032.74 billion taka as of December 31 last year from 887.34 billion taka a year earlier, according to the latest central bank statistics released on Wednesday.

And the amount of classified loans will go even further if the amount of write-offs is included in the figure.

The outstanding amount of canceled credits stood at 436.09 billion taka in September last year.

The Bangladesh Bank (BB) introduced in 2003 guidelines for cancellation of classified loans, aimed at improving loan recovery and making banks’ financial statements more transparent and accountable.

Loan write-off is a worldwide practice. But that will depend on the ability of an affected bank to write off its failed loans.

Before making a final decision in this regard, the bank’s management must ensure a provisioning as a percentage of the amount to be written off.

Speaking to the FE, central bank spokesman Md Serajul Islam said the amount of classified loans increased slightly in the fourth quarter (Q4) of 2021 compared to the previous quarter following a higher volume of total outstanding loans in the banking sector.

“But NPLs have declined in percentage terms over the reporting period,” said Mr. Islam, also the executive director of BB, while explaining the latest trend in graded loans.

The volume of classified loans increased by more than 2.0 percent or 21.23 billion taka to reach 1032.74 billion taka as of December 31 from 1011.50 billion taka three months earlier, according to BB data.

On the other hand, the share of NPLs fell to 7.93% of total outstanding loans during the period under review, compared to 7.66% in December 2020. It was 8.12% as of September 30, 2021.

Graded loans cover the substandard, impaired and bad/loss portions of total outstanding loans, which reached Tka 13,017.97 billion as of December 31 on a consolidated basis. A year ago it was 11,587.75 billion taka.

The total loan outstanding was Tk 12,453.91 billion as of September 30, 2021. The central bank has prepared the consolidated statement covering both Domestic Banking Units (DBUs) and Offshore Banking Units (OBUs) since the last quarter 2020.

Previously, the BB had prepared two separately filed loan statements for DBU and OBU.

Senior bankers, however, say a good number of borrowers took advantage of the eased repayment facility during the period, in line with the BB’s policy relaxation on loan repayments.

As part of the relaxed stance, borrowers were allowed another chance to remain unclassified if they repay at least 15% of total outstanding loans for the entire calendar year by 31 December 2021.

The remaining 85% of outstanding loans during the period from January to December 31 of the last calendar year would be payable within one year from the expiry date of the loan term, according to responsible.

BB officials also say that the recovery as well as the rescheduling of loans also helped to keep the amount of NPLs at a “reasonable level” in the last quarter of 2021.

Experts and bankers, however, fear that NPL volume will increase further in the first quarter (Q1) of the current calendar year, as the BB’s easing policy on loan repayments has already been removed.

“The amount of NPLs is expected to increase further in the first quarter of 2022 due to the support of the BB withdrawal policy,” Syed Mahbubur Rahman, Managing Director (MD) and CEO of Mutual Trust Bank Limited, told FE while explaining the possible trend of NPLs.

Echoing Mr. Rahman’s view, Shah Md. Ahsan Habib, a professor at the Bangladesh Institute of Banking Management (BIBM), says that the volume of graded loans may increase in the first quarter of 2022, which would not be not an abnormal trend of NPLs in the country’s banking sector. system.

“We are still in the process of recovery from the commercial distraction of Covid-19,” notes Mr. Habib.

He also says that banks will need to bolster their capital to deal with the potential decline in asset quality, if any.

Meanwhile, the total amount of loans in default with the six state-owned commercial banks (SoCBs) increased to Tka 449.77 billion in the fourth quarter of 2021 from Taka 422.73 billion a year earlier. The amount was Tk 440.16 billion in the third quarter of 2021.

On the other hand, the total amount of NPLs with the 42 private commercial banks reached Tk 515.21 billion as of last December 31, compared to Tk 403.61 billion on the same day of 2020. It was Tk 507.43 billion. Tk in the third quarter of 2021.

Graded loans from nine foreign commercial banks (FCBs) rose to 27.85 billion taka in the fourth quarter of 2021 from 20.38 billion taka a year ago. It was 26.92 billion taka as of September 30 last year.

These loans from the two development finance institutions (DFIs) fell to 39.91 billion taka as of December 31 last year from 40.61 billion taka a year ago. It was Tk 36.99 billion in the third quarter of 2021.

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