Banks` written-off loans soar further to Tk 423 billion

Written-off loans bloated by nearly 3.0 per cent or Tk 11.20 billion in the first six months of the current calendar year as banks tried to clean their balance sheets by reducing loads of default loans.

The cumulative amount of loans written off by the banks rose to Tk 423.22 billion as on June 30, 2016 from Tk 412.01 billion on December 2015. The volume was Tk 376.45 billion a year before, according to the central bank`s latest statistics.

On the other hand, the amount of written-off loans increased by more than 2.0 per cent or Tk 9.21 billion to Tk 423.22 billion during the second quarter (Q2) of the current calendar year from Tk 414.01 billion in the preceding quarter.

Talking to the FE over the snowballing of the dud money, a senior official of the Bangladesh Bank (BB) said the rising trend in writing off loans indicates lack of due diligence during the sanctioning of the credits.

He also said writing off loans is a global practice that helps the banks to show their financial soundness.

"But it will depend on the capability of the bank concerned to write off its bad loans. This is because 100 per cent provisioning is required before writing off any loan," the central banker explained.

During the April-June 2016 period, the amount of written-off loans by six state-owned commercial banks (SoCBs) rose to Tk 220.48 billion from Tk 220.31 billion as on December 31 last. It was Tk 220.42 billion in the Q1 of this calendar year.

However, a total of Tk 189.38 billion was written off by 39 private commercial banks (PCBs) during the period under review against Tk 179.10 billion six months ago. It was Tk 180.41 billion as on March 31 last.

Loans written off by nine foreign commercial banks (FCBs) rose to Tk 7.80 billion in the Q2 of 2016 from Tk 7.06 billion in Q4 of the last calendar year. It was Tk 7.64 billion in the Q1 of this calendar year. Two development finance institutions (DFIs)`s written-off loans remained unchanged at Tk 5.55 billion in the Q2 of this year.

The incremental growth in default loans prompted the central bank to notify the banks on actions needed to straighten their account.    

"We`ve already asked the banks, particularly public ones, to improve their financial health through expediting recovery drives for both classified and written-off loans," another BB official told the FE,

He also said the central bank sent a letter to four state-owned commercial banks out of six in this connection recently.

"We`ve already formed committees to realise our written-off loans," a senior official of a leading SoCB told the FE, without elaboration.

A senior official of a PCB said the overall legal process will be reformed as early as possible to expedite the recovery of such loans.

"We`ve already taken various measures, including appointing private recovery agents, to recover our written-off loans. But the result was not satisfactory," the private banker noted.

The central bank of Bangladesh introduced guidelines for writing off classified loans in 2003 aiming to improve loan recovery and make the financial statements of banks more transparent and accountable.

Under the existing provisions, the bad-loan portfolios remaining for a period longer than five years will come under the provision of writing off bad loans.

Before making any final decision in this regard, the bank management has to ensure 100 per cent provisioning against the amount to be written off.