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Bangladesh Bank again chose to relieve banks from the liabilities of default loan recovery by finding a solution to the rising number of default loans and pending cases with the Artha Rin Adalat (money loan court) in the country.
In a recent directive, the central bank increased banks’ loan write-off capability up to Tk5 lakh, by 150%.
Bankers and economists say these extended write-off facilities in actual default loan count will not send a good message as it will act as a camouflage to shelter willful defaulters and hide the real picture in the banking sector of Bangladesh.
Regarding the latest move, the Bangladesh Bank said that the cost of fighting a legal battle after starting a case for petty defaulted loans is often high, in some cases more than Tk2 lakh, or even the total outstanding amount.
In a 2019 notice, the Bangladesh Bank said lenders must start a case under the Money Loan Court Act 2003 before writing off loans.
The period after which banks can cancel the record of bad debt was reduced from five years to three years at that time.
The latest notice has kept other conditions of the previous notice unchanged.
This decision comes when the Covid-19 loan moratorium is over and risks rising growth in bad loans.
According to data from the Bangladesh Bank, total disbursed loans in the country stood at Tk1,436,000 crore as of September 22.
Out of this, defaulted loans are Tk134,000 crore.
The total number of pending cases with the Artha Rin Adalat was 69,369 as of June last year, with Tk153,000 crore in dispute, banks claimed.
Earlier on December 31, 2021, the number of cases pending in this court was 68,271 against Tk143,000 crore.
On the other hand, there are more than 10,000 writ cases in the High Court regarding defaulted loans.
Zahid Hussain, lead economist consultant at the World Bank Dhaka office, told Dhaka Tribune: “This will not help improve the overall health of the financial sector as it does not have any message for realizing the bad loans from the big defaulters. We are not giving the forbearance to the small clients. It is just general forbearance.”
Requesting anonymity, the managing director and CEO of a leading bank said that strict rules were previously imposed by the central bank in terms of recovery at one time to reduce defaulted loans. Banks were under pressure to collect loans.
But for several years, the central bank itself has come up with various ways to show less defaults without insisting on recovery, he also said.
He also added that this new directive will reduce the number of cases in the courts concerned, which are reportedly facing a logjam of money cases amid growing loan delinquencies.
Data shows that after write offs started in 2003, banks wrote off loans worth Tk58,000 crore, or 51% of the total defaulted loans.
Write-off opportunity
Taking this into consideration, Bangladesh Bank first gave an opportunity to write off the loan up to Tk50,000 without filing a case in 2013.
Later in 2019 this amount was increased to Tk2 lakh and now in a latest directive on January 5, 2023 Bangladesh bank increased it by 150% to Tk5 lakh.
From now on, banks can write off up to Tk5 lakh — more than double the earlier amount of Tk2 lakh, without filing any lawsuit with the Artha Rin Adalat.
Bankers said that banks write off loans to clean up their balance sheets after setting aside adequate provisions.
Once an account has been written off, it doesn’t show as an asset on the bank’s balance sheet, but efforts to recover the dues through bankruptcy proceedings or sale of bad loans continue.
However, borrowers were given time till December 2022 to avoid their loans being classified as defaulted by paying 25% to 75% of their installments for 2022.
This Covid-19 loan moratorium is over now, which threatens the overall defaulted loan growth.
(DT)
