State banks' bad loans defy BB roadmap, jumps to 27% in a year

Infographics: TBS

Although the Bangladesh Bank formulated a roadmap to reduce defaulted loans of state-owned banks to 10% of total disbursement by 2026 in line with the International Monetary Fund (IMF) conditions set in January 2023, it increased to 27.42% within a year.

According to a central bank report sent to the Financial Institutions Division on 7 May, defaulted loans of state-owned banks have increased by 73.20% to Tk85,870 crore in March 2024 since March 2022.

Stakeholders say the Bangladesh Bank has offered loan rescheduling and restructuring facilities several times with a 2% payment option since 2019 to mitigate the amount of defaulted loans. Additionally, during the Covid-19 period, the central bank provided moratorium facilities to traders for an extended period.

The recent withdrawal of these facilities has led to a further increase in defaulted loans, they say.

Besides, although the agriculture and SME loan recovery situation is good, there are many complications in collecting loans from big customers.

They fear the amount of defaulted loans may continue to rise in the future as loan interest rates will increase further due to the market-based interest rate.

According to Bangladesh Bank data, the total amount of loans and advances disbursed by six state-owned banks – Sonali, Janata, Agrani, Rupali, Bangladesh Development Bank Limited (BDBL), and BASIC – at the end of last March was Tk313,149 crore.

The central bank report stated that in March 2022, the defaulted loans of the six banks amounted to Tk49,576 crore. This figure increased to Tk60,642 crore by March 2023.

According to the central bank report, among the state-owned banks, Janata Bank and Agrani Bank have experienced the highest increase in defaults over the past two years while the BDBL has seen a reduction in defaulted loans over the past year.

Over a span of two years, from March 2022 to March 2024, the defaulted loans of Janata Bank surged by 131%. Agrani Bank has also seen an increase in defaulted loans by 121%.

When asked about the reasons for the surge in defaulted loans, SM Mahfuzur Rahman, chairman of Janata Bank, told TBS, "We have not lacked efforts to reduce defaulted loans. However, we are not seeing any results. The process of recovery of defaulted loans should be followed. We have nothing else to do."

He said, "From 2005 to 2016, there were irregularities in several loans of Janata Bank. At that time, there were errors in customer selection, which are now hindering loan recovery efforts. These loans are contributing to the increasing amount of defaulted loans."

Zaid Bakht, chairman of Agrani Bank, told TBS that due to the international situation and internal problems in the country, including Covid-19 and the Ukraine-Russia war, import costs have increased.

"The business situation has worsened. In the meantime, gas and electricity bills have increased, and the dollar price has risen. Consequently, incomes of traders have decreased, leading to an increase in defaulted loans," he said.

"The loans that were previously rescheduled and restructured under interest waivers have now defaulted again. As a result, Agrani Bank's defaulted loans have increased from Tk14,000 crore to Tk20,000 crore within a year."

He went on to say, "For those who are good businessmen, we are providing assistance with new loans gradually so that their businesses can repay the loans. The habitual or wilful defaulters will be listed separately, and legal action will be taken against them."

According to the central bank report, the defaulted amount of the BDBL, which is now slated to be merged with state-owned Sonali Bank, has decreased over the past year. In March 2023, its defaulted loans amounted to Tk1,063 crore. By March of this year, however, the defaulted loans had decreased to Tk874 crore.

The report also said the top 20 defaulters in the six state-owned banks have defaulted loans amounting to Tk30,491 crore, which constitutes around 36% of the banks' total defaulted loans. Experts say the credit risk of these banks is increasing as a significant portion of their loans are held by a few customers.

According to the report, state-owned banks have written off Tk18,171 crore of defaulted loans until March this year. The amount of loans written off in March of the previous two years is also nearly the same.

If these written-off amounts are added to the defaulted loans, the total amount of defaulted loans of state-owned banks will exceed Tk1 lakh crore by the end of last March.

Recovery from default loans

The amount of defaulted loans in state-owned banks is increasing day by day, yet recovery from defaulters remains stagnant. Annually, the Financial Institutions Division sets targets for defaulted loan recovery for these banks.

According to the Bangladesh Bank report, as of last March, the recovery rate stood at 4.67% of the banks' one-year target and 0.36% of the total defaulted loans.

As of March, against the target of Tk6,785 crore for the recovery of defaulted loans from the six state-owned banks by 31 December 2024, only Tk317 crore was recovered till March.

Janata Bank has the highest target for defaulted loan recovery. By the end of March, only Tk41 crore was collected against the bank's target of Tk2,500 crore for the year.

Similarly, Agrani Bank collected Tk68 crore by March, compared to its target of Tk1,535 crore for the recovery of defaulted loans this year.

Sonali Bank recovered Tk83 crore by March against its target of Tk1,000 crore from defaulters. Rupali Bank has a target of Tk800 crore, BDBL Tk200 crore, and Basic Bank Tk750 crore by the end of December. As of March, Rupali Bank collected Tk67 crore, BDBL Tk18 crore, and Basic Bank Tk40 crore.

No recovery from top 20 defaulters

Out of the Tk30,491 crore owed by the top 20 defaulters of the six state-owned banks, the target for recovery this year is Tk2,745 crore. However, by the end of the first quarter, only Tk8.7 crore was collected.

The top 20 defaulters owe Tk5,081 crore to Sonali Bank. This year, the bank has set a target of collecting Tk300 crore from them, but only Tk0.20 crore was collected by the end of March.

Similarly, Janata Bank's loan amount to the top 20 defaulters is Tk9,097 crore. By the end of March, it had collected Tk0.45 crore against the target of Tk910 crore by next December.

Agrani Bank's loan amount to the top 20 defaulters is Tk8,928 crore. This year, the bank has collected Tk2 crore against the target of Tk685 crore.

Written-off loans

The state-owned banks have also been unable to recover from written-off loans. Against the target of collecting Tk500 crore from the written-off loans of Sonali Bank by 31 December 2024, only Tk4 crore was collected by the end of March.

By December of this year, Janata Bank's target for collection from write-off loans is Tk324 crore. By the end of March, the bank had collected Tk16 crore.

Similarly, Agrani Bank collected Tk14 crore against the target of Tk400 crore, and Rupali Bank collected Tk32 crore by the end of March against the target of Tk60 crore.

Abul Kashem is a Special Correspondent at The Business Standard. He has expertise in the fields of macro economy, development economics, government policies, trade and commerce. He can be reached at [email protected]