The Chattogram-based steel and ship breaking industry has defaulted on Tk10,000 crore in the last eight years, thanks to a borrowing spree from banks in the sector's good times, from 2008 to 2012.
Banks say now they are concerned about recovering the debt mounting every year as many businessmen have already dropped out of the steel and shipbreaking businesses.
Debt recovery court counts suggest the number of cases filed by banks and non-bank financial institutions in the last eight years against steel-makers has also been on the rise.
The total volume of loans by Chattogram businessmen that is in default is around Tk36,000 crore, spread across sectors such as essential commodities, steel, readymade garments, and real-estate. Now, shipbreakers hold nearly one-third of that debt, Tk9,895 crore to be exact.
Industry insiders say investments by new businessmen in steel manufacturing between 2008 and 2012, and bank loans to them without assessment, have prompted the situation.
In 2020 alone, as much as Tk473 crore of bank loans in the sector was in default, with financial houses filing cases against 15 businesses.
Abu Taher, president of the Bangladesh Ship Breakers and Recyclers Association, said, "Many people without any prior business experience jumped into the shipbreaking sector in the good times as banks were lending very generously then. They ran away from the business with an international and domestic market slump."
"The entire sector is still bearing the loan burden of that time and the bad reputation earned by the business newbies," he told The Business Standard.
Shipbreaking industry people say bankers were lending with a free hand to everybody and to new steel and shipbreaking businessmen in 2008-2012. It seemed banks were competing to lend to the steel sector and fulfil their annual lending targets.
After availing the loans, many businessmen purchased land and spent easy money on luxuries. But the 2013 international and local steel market collapse dealt the industry a heavy blow, forcing steel enterprises into huge losses.
In the face of market collapse, there were cases of steel scrap selling for $220 per ton in the local market after buying that at $760 from the international market. The steel newbies then started to disappear.
Not only newcomers to the steel sector, but many old enterprises became loan defaulters too. Since then, the number of defaulters has been on the rise as has the volume of steel bad debt.
Zahed Iqbal, executive vice president at Dhaka Bank Limited and also manager of Chattogram's Agrabad branch, said, "Bankers are also responsible for the whopping bad debts to the steel and shipbreaking industry. Because they approved the loans at that time without any credit assessment and risk analysis. They even competed with one another in giving loans."
"With the loans, most of their clients bought lands, spent it on luxuries, or siphoned off the money abroad. Bank officials are now bearing the brunt of the bad debt," he told TBS.
Steel loan default cases on the rise
Court documents suggest the number of steel loan default cases has increased in the last eight years.
In 2020, banks and financial institutions filed cases against 15 companies with Chattogram debt recovery courts for loan defaults totalling Tk473 crore. Earlier, in 2019, there were 14 such cases for an amount of Tk500 crore.
In 2018, there were 21 cases against Tk1,100 crore in bad loans, and 38 cases in 2017 against Tk3,129 crore in unpaid debt.
Banks and financial institutions filed lawsuits against loan defaulters of Tk4,219 crore in 2016, Tk1,348 crore in 2015, Tk2,210 crore in 2014, and Tk5,970 crore in 2013.
The bad debtors list is quite long too
BNP leader Aslam Chowdhury's Rising Steel owes Tk2,591 crore to several banks. Another Chattogram-based company, Mishmak Group, took out most of its bank loans for steel-making. The group now owes around Tk1,500 crore to multiple banks.
Another steel manufacturer, MAC International, has defaulted on Tk800 crore so far. Steel contributes to Tk900 crore of Rubaiya Group's Tk2,500 crore in bad debt.
Steel manufacturer RSRM owes Tk1,696 crore to two banks. The list is quite long with new businesses having joined the loan default rally recently.
Of the new defaulters, Peninsula Steel owes Tk250.43 crore to One Bank and Eastern Bank, S Steel Enterprise Tk46.92 crore to Padma Bank, Raihan Metal Tk34.56 crore to One Bank, RM Steel, Tk24.20 crore to Standard Bank, and Premier Steel, Tk15.16 crore to Eastern Bank.
Banks have filed lawsuits against the above enterprises for their loans in default.
More veteran and older businesses in default, including Ali Steel, Fortune Steel and Shah Amanat Iron Mart, also face cases filed by banks and non-bank financial institutions.
Madina Iron Mart, NDR Steel, Chattala Iron Mart, Jamuna Steel Corporation, and Khwaja Ajmer Iron Mart, have also defaulted on their bank borrowing recently, and the concerned banks filed cases against them last year.
Sitakunda's Md Sirajuddaullah has defaulted on a Tk200 crore loan having stepped into business and formed Pakija Enterprise, without any prior experience in the steel business.
According to the bad debt list, steel-maker Maheen Enterprise has defaulted on Tk935 crore, Shah Amanat Iron Mart, Tk600 crore, Mabia Ship Breakers Tk529 crore, Ehsan Group's Ehsan Steel, Tk484 crore, Ambia Steel Tk300 crore, SK Steel Tk314 crore, Peninsula Steel Tk300 crore, Super Six Star Tk150 crore, Benz Industries Tk140 crore, Crystal Steel and Ship Breaking, Tk135 crore, Mostafa Steel of Mostafa Group, Tk125 crore, Jilani Traders Tk108 crore, Hillview Ship Breaking Tk83 crore, GK Steel Tk75 crore, Tanha Steel Tk71 crore, Rashed Iron Steel Tk65 crore, Arafat Steel Tk60 crore, Fortune Ship Breaking Industries, Tk53 crore, Shahed Ship Breaking Tk44 crore, SM Steel Tk43 crore, Joynal Steel Tk36 crore, AK Enterprise Tk36 crore, Shakib Steel Tk33 crore, Unique Steel Tk26 crore, Sultana Ship Breaking Tk19 crore, and Khwaja Ajmer Ship Breaking, Tk11 crore.