Even amid a payment pause facility during the pandemic crisis, banks rescheduled Tk13,470 crore loans last year.
The rescheduled amount, however, was the lowest in the last five years and 74% lower when compared to the previous year's figure, according to the Bangladesh Bank's financial stability report for the year 2020.
The banking sector experienced the highest amount – Tk52,770 crore – of loan rescheduling in 2019 as the central bank offered a one-time exit policy that allowed borrowers to regularise loans at only 2% down payment.
The financial stability report observes that the amount of loans rescheduled in 2020 was low, thanks to the central bank's policy support during the pandemic.
"Intensive monitoring is crucial for ensuring a timely recovery of these loans and thus to lessen the pressure on the banking system", says the report.
In 2019, the Bangladesh Bank issued a special policy on loan rescheduling and a one-time exit policy to address the issue of long-standing bad loans that were affected due to adverse circumstances.
Besides, to address the adverse impact of Covid-19 pandemic on the industrial sector as well as the banking sector, the Bangladesh Bank relaxed loan classification and recovery policy in 2020 that permitted banks not to classify new as well as rescheduled loans since the onset of the pandemic.
All those moves helped to bring down the amount of rescheduled loans in 2020. The industrial and apparel sector accounted for the highest 52% share of rescheduled loans last year.
Among the other loans categories, commercial loans, construction, other non-specified sectors – including ship-building and ship-breaking, transportation and communication and consumer credit, etc – and foreign trade – export credit, import credit, and loans against trust receipts – shared 9.2%, 6%, 11.5% and 8.3% of the total rescheduled loans, respectively.
Of the rescheduled loans, a significant amount remained classified, which is a matter of concern for the central bank.
The ratio of non-performing loans rescheduled was the highest 23.3% in the RMG sector, according to the Bangladesh Bank's data.
Private commercial banks possessed the highest amount of rescheduled loans which accounted for 59.6%, while the share of state-owned commercial banks was 35.6% last year.
Even after a considerable amount of loans having been rescheduled and the payment pause facility was in place throughout last year, the amount of defaulted loans surged in the first three months of the current year.
Borrowers do not have much pressure on them at present to pay loan instalments as they are enjoying an eased repayment facility on the basis of bank-customer relationships which will expire in August.
Even then, the amount of defaulted loans in the country's banking sector increased by more than Tk5,000 crore in three months from January to March this year.
At the end of March this year, total default loans stood at Tk94,000 crore or 8.02% of the total outstanding loans, up from Tk88,734 crore or 7.66% of the total outstanding loans at the end of December last year, according to sources at the Bangladesh Bank.
Expressing concern about the upcoming default loan wave, the private think tank Centre for Policy Dialogue (CPD) said the severity of high default loans is currently invisible due to the measures taken to ease loan classification.
However, once loans are classified without any special considerations, the volume of default loans may go up significantly, the CPD recently said in a reaction on monetary policy for the current fiscal year.
It further said repayment of loans provided under stimulus packages may become a cause of concern in the coming days.
Once the moratorium on loan classification is lifted, the level of non-performing loans may also rise suddenly, experts observed.