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Banks in Bangladesh have been generous in waiving loans throughout the pandemic despite their poor record in recouping funds from defaulters.
They waived funds to the tune of Tk 2,383 crore between January last year and September this year, a development that will bring no good for the financial health of banks as it directly hits their income book.
Influential and delinquent borrowers chiefly manage the facility, creating a moral hazard for good clients. Waiving such a higher amount of money amid business slowdown has widened the woes of banks, economists say.
Banks waived loans amounting to Tk 2,293 crore in 2019 and Tk 1,194 crore in 2018, data from the Bangladesh Bank showed.
Salehuddin Ahmed, a former central bank governor, said that there was an unholy nexus between the owners of banks and the delinquent borrowers.
A few individuals, who hold positions in the board of director of banks, are also the owners of industries. And the directors are mainly availing the waiver by colluding with each other, he said.
“Business people holding directorship in a bank’s board is rare across the world. But the practice is completely different in Bangladesh. Eventually, this weakens the corporate governance of local banks,” Ahmed said.
The waiver came as the recovery from default loans has failed to keep pace with escalating delinquent assets.
Between January and September, banks retrieved Tk 4,195 crore from their non-performing loans, which was Tk 3,751 crore during the same period a year ago.
Banks recouped Tk 5,802 crore from their combined NPLs in 2020 in contrast to Tk 15,466 crore the year before.
Fahmida Khatun, executive director of the Centre for Policy Dialogue, says the banking sector is in a terrible situation given the upward trend of default loans.
“So, providing the waiver to the vested quarter will deteriorate the financial health of banks.”
“The income of banks will decline due to the waiver. And this will even discourage good borrowers from repaying loans on time.”
Khatun emphasised that the moral hazard would push the NPLs higher.
As of September, the NPLs stood at Tk 101,150 crore in the banking industry, an increase of 14 per cent from nine months earlier and 7.1 per cent year-on-year.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, says banks extend the waiver to clients when they face default loans and shortage of cash flow.
“If such clients apply to lenders for a waiver following the repayment of a major portion of the loan, we usually consider the issue carefully,” he said, urging banks to refrain from giving such treatment to other types of loan.
Mirza Elias Uddin Ahmed, managing director of Jamuna Bank, says that banks only waive the interest amount of the loans of the borrowers whose businesses were about to close due to various reasons.
“We don’t extend the facility to the borrowers who are currently running businesses.”
A central banker says that some influential clients have earlier had a large amount of their loans waived while rescheduling bad assets.
(TDS)
