Half of industrial loan defaulted in Bangladesh

The recovery of default industrial loan would be a big challenge for the banking sector because the lion share of the non-performing loans (NPLs) amount is holding by the big borrowers of the country, said the experts.

After taking charges, the new finance minister AHM Mustafa Kamal asked the Bangladesh Association of Bankers (BAB) to undertake necessary steps against the defaulters to reduce the NPL of the banking sector.

Banking sources said, big borrowers are very powerful and most of the loans are political consideration, and for this, the recovery team of banks is failing to recover the bad debt of industrial loan.

According to Bangladesh Bank data, the default industrial loan stood at Tk 43,620 crore at the end of September 2018 while the amount was Tk 31,269 crore during the corresponding period of 2017.

The amount of NPL in the industrial loan was increased by 49.50 percent or Tk 12,350 crore for the failure of repayment of equal monthly installment (EMI) by the large-scale stakeholders and lack of effective loan recovery measures by the scheduled banks of the country.

As on December last, total NPL of the banking sector has increased by 24 percent or Tk 19,064 lakh crore from the year 2017 in which the share of industrial loan is 65 percent. Total NPL amount stood at Tk 99,371 lakh crore at the end of December last.

During July to September period of the last year, banks distributed Tk 94,420 lakh crore to the industrial sector. Of the total distributed amount, the large-scale industry availed Tk 77,000 lakh crore or 81.55 percent.

However, the private commercial banks disbursed the highest 77.40 percent to the industrial sector, followed by 14.09 percent by foreign commercial banks, 6.18 percent by state-owned commercial banks and the remaining 2.19 percent by specialized banks.

Sources said, banks distributed industrial loans to the large-scale stakeholders without maintaining proper credit guidelines of the central bank.

Experts said the impact of default industrial loan is unpleasant for the economy which is hindering private sector credit growth. At the same time, banks are forcing to narrow their disbursement in SME, agriculture and retail loans.

Experts have expressed their concern over rise in default industrial loans in the banking sector. The defaulters blamed dull business environment, poor infrastructure and lack of power and gas supply to the industries for their failure to repay the loan installments.

Talking to the Daily Industry, Md. Ehsan Khasru, managing director of Farmers Bank told that the default industrial loan is the key challenge for the banking sector. “We have to take initiatives to reduce the non-performing loans at any cost as the default loans are damaging the reputation of a bank”, he said.

Apart from this, the financial soundness of banks are hampering for raising the industrial loans, he added.

A senior Bangladesh Bank official said that actually, the recent rise in default industrial loans was mainly due to the failure of the scheduled banks to take into consideration the risk factors and also absence of effective loan recovery measures.

Md. Shafiul Islam, president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) said industrial loan is an important factor for industrialization in the country. So, the credit analysts of the banks have to be cautious to set up the credit limit in favour of the industrialists, he added.

Due to lack of adequate energy and power, a good number of businessmen failed to repay installments of their loans in due time. Poor infrastructure also remains a hindrance to expanding their business. He urged the government to provide power connection immediately to the new factories.

Economist claimed the big borrowers are availing loans for political consideration as they are influential. Artho- rin- adalat is applicable for the petty defaulters but not the large stakeholders, they added. Banks are forcing to approve the industrial loans in favour of the big borrowers for political pressure. At the same time, directors of the banks are being influenced by the big borrowers.

Lack of good governance and corporate culture are one of the major reasons behind increasing default industrial loans resulting capital and provision shortfall of banks. Since last year, a good number of banks have been facing severe crisis for their shortfall of capital and provision.

“If we fail to ensure good governance, corporate culture, corruption and political interference free in approving larger-scale industrial loan, the endless journey of default loan would not prevail in the banking sector. The NPL is foiling the financial health of the banking sector which is impeding the growth of country’s economy”, they said.

The number of willful defaulters has also increased in the recent years, he said adding banks are forcing to make write-off and rescheduling of bad debts to hide the real amount of NPL, they observed.

Centre for Policy Dialogue (CPD) distinguished fellow Dr Mustafizur Rahman said industrial loan is important for growth of the economy but the default loan is not desirable. The repayment failure of industrial loans is a serious threat to the banking sector, he mentioned.
Failure in repayment of industrial loans is a serious threat to the banking sector which is reducing banks’ capability to provide fresh loans in the long run in future.

Besides, indiscriminate loan disbursement by banks also resulted in soaring default credit in the industrial sector, he said. The NPL amount of industrial loan increased in the last year as banks did not disburse the loans to the proper clients.

He further said that the central bank should speed up its monitoring process to ensure the quality of loan disbursement. Otherwise, the default loans in the industrial sector will increase further, he said.

Bangladesh Bank spokesman Serajul Islam said the central bank has already installed industrial loan monitoring software to know the loan behaviour of the customers. On the basis of the loan characteristics, the central bank will instructed the scheduled banks to recover the due installments. However, he hoped that the initiatives will help to reduce the amount of default industrial loans.
Source: http://www.dailyindustry.news

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