At a time when the country's economy was on its way for a turnaround from pandemic-induced losses, the banking sector has fallen into deep trouble with default loans shooting up by Tk22,000 crore in the first six months of the current year after the end of the moratorium facility in December last year.
The default loans stood at Tk1.25 lakh crore at the end of June from Tk1.03 lakh crore in December last year, according to data from the Bangladesh Bank released on Thursday.
The banking sector saw a sharp rise of Tk11,816 crore in default loans in the April-June quarter, taking the rate to 8.96%. In the January-March quarter, default loans rose by Tk10,167 crore.
Business activities had returned to normal since last year following a pandemic-led hiatus, but default loans kept rising as banks moved for classifying accounts that were shown regular under the moratorium package, say bankers.
Moreover, some borrowers willingly remained irregular in repayments, with intent to avail the new loan rescheduling facilities at a discounted down payment offer, they note.
Md Mehmood Husain, managing director at National Bank, said banks moved for classifying loans after the lifting of the general moratorium facility offered during the pandemic.
Repayments of borrowers in real estate and hospitality industries were bad during the pandemic, which are now being classified, he also said.
Moreover, many clients are willing to reschedule their loans under a new rescheduling policy at discounted down payments, he said.
Many borrowers who could not regularise their loans due to high down payments were waiting for the new policy, he added.
Mutual Trust Bank MD Syed Mahbubur Rahman said when businesses started to recover from pandemic-triggered losses, the Russia-Ukraine war dealt another blow to borrowers.
Moreover, large industries recovered fast but small and medium enterprises failed to make a full recovery and are now turning into defaulters, he noted.
Anticipating the default loan wave, the Bangladesh Bank revised up its rescheduling policy with a mega discount on down payments.
At the same time, borrowers were allowed to reschedule their loans for a long time – up to 29 years.
According to the new circular issued on 18 July, defaulters are allowed to reschedule their loans by paying a down payment – minimum 2.5% and maximum 4.5% of their outstanding overdue.
Previously, the required down payment was minimum 10%-30% but defaulters would take a discount from the Bangladesh Bank under special consideration.
Moreover, previously, banks could allow defaulters to reschedule loans for a maximum of three times, but they can now do so up to four times.
Bankers hoped that the new rescheduling policy will help banks cut default loans.
Mohammad Shams-Ul Islam, managing director at Agrani Bank, said state-owned banks will benefit more from the new policy as their customers are worst in the industry. Some customers make payments to private banks regularly, but they do not want to do so in the case of the state-owned banks.
Of the total default loans, state-owned banks accounted for 21.93% and private banks for 6% at the end of June, according to data from the Bangladesh Bank.
Default loans in the banking sector increased by Tk14,539 crore in 2021 after loan moratoriums were partially lifted.
Although resumption of business activities increased money flow last year, many borrowers were yet to meet payments, forcing banks to classify a number of loans, causing a rise in defaults, industry insiders said.
The banking sector experienced a 16.38% growth in default loans after many banks refrained from extending the moratorium facility in 2021.
The payment deferral that the central bank offered for January-December in 2020 helped banks reduce default loans amounting to Tk5,600cr throughout the year.
Default loans came down to Tk88,734cr in December 2020, which was 7.66% of total loans, the lowest in recent years.
The payment deferral facility, however, was partially lifted from the beginning of last year, causing a sharp rise in default loans, which crossed Tk1 lakh crore in September last year.