Canceled bank loans rise due to ‘reluctance’ to take over

| Update:
April 02, 2022 07:08:32

Efforts to recover billions of taka in canceled loans appear slow as most state-owned banks only recover a peanut each month, officials say, while missed money swells.

Once the balance sheet has been cleaned up by canceling delinquent loans each year, the Ba’k authorities make little special effort to recover the money, they add.

Bankers say they try to recover canceled loans as part of their regular job instead of making special efforts.

For example, Agrani Bank Ltd recovered only 10 million taka in January this year and 39 million taka in February against its annual recovery target of 5.20 billion taka this year.

Until December 2021, the bank had a total amount of Tk 40.45 billion in canceled loans.

Sonali Bank Ltd, the largest commercial bank in the country, has a total of Tk 68.277 billion of credits eliminated from the balance sheet to keep it in order. The bank has set a target to recover about 10% of the total canceled funds, or 6.827 billion taka, in this calendar year.

However, during the January-February period, the bank was only able to recover Tk 140 million and Tk 95.83 million respectively.

The data shows that banks have witnessed an increase in the volume of canceled loans every year which sources say are unlikely to be recovered or the banks themselves are unwilling to exert increased efforts towards this end.

Last year, the country’s banking sector wrote off some Tka 24.42 billion of bad debts to clean up its balance sheet. In 2020 the volume was 9.71 billion Tk, in 2019 around 25.97 billion Tk and in 2018 they released 33.70 billion Tk.

When contacted, Sonali Bank Managing Director Ataur Rahman Prodhan told FE that usually only the worst cases of loans are canceled as they have almost no hope of recovery.

“But delisting doesn’t mean eliminating them,” he says, adding that the process continues to recover the money.

Mr Prodhan notes that public sector banks did not cancel loans after 2014 and now the money is gradually being recovered.

“We keep a 100% provision with Bangladesh Bank against cancellation of loans,” he says of the security guarantee against missed money that is separated for recovery beyond the scheduled time.

It further clarifies that small and large loans that do not have security coverage or the borrowers are deceased, and some loans have disputes are written off.

Agrani Bank chief executive Mohammad Shams-Ul Islam told the FE that loans that no longer have the possibility of being collected are only cancelled, but “those do not escape us”.

“We write off loans to clean up the balance sheet,” he says, but efforts continue to offset them.

About the recovery process, he mentions that employees are given a recovery goal, and if they can achieve it, they are rewarded for success.

Former Bangladesh Bank Governor Dr Salehuddin Ahmed earlier told the FE that the amount of canceled loans recovered was by no means satisfactory.

“It is unacceptable for banks to reduce their recovery effort once the loans are written off,” he said before adding: “It is a total failure”.

Dr Ahmed said the Bangladesh Bank had recently lowered the time required for bad debts to be written off the balance sheets to three years from the previous five years.

“Bankers are taking advantage of central bank flexibility and making no effort to recover canceled loans,” he added.

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