Bad loans bleeding banking sector

Local and foreign banks had to write off a total of Tk 23.42 billion as bad loans in the last three months (October-December) of the year gone by.

Latest report of the Bangladesh Bank shows that of the amount, the private banks together have written off Tk 13.41 billion, nationalised banks Tk 9.84 billion, while the remaining amount of Tk 182 million was abandoned by all the foreign banks. No non-banking financial institution wrote off any bad loan during the period.

The report said that Tk 238.36 was written off in 2012 in the banking sector which is around Tk 30 billion higher over its previous year figure.

Of the amount, private banks together have written off Tk 100.35 billion, state-owned commercial and specialised banks Tk 102.49 billion, foreign banks have written off Tk 3.14 billion and the amount written off by non-banking financial institutions stood at Tk 32.38 billion.

On Dec 31, 2011, the total volume of written-off loans was Tk. 208.44 billion.

Former Deputy Governor of Bangladesh Bank and incumbent Chairman of Bangladesh Krishi Bank Khandaker Ibrahim Khaled told bdnews24.com, “The volume of bad loans in the banking sector has been on the rise since the loans are distributed without proper scrutiny. As a result, the banks fail to realise the loans at a stage and are compelled to write them off. So, the amount of written off bad loans is acquiring larger shape every year.”

“Loans are written off when banks lose the last ray of hope to recover them,” explained a central bank official.

Usually, the concerned bank management has to transfer the record of such default loans to a separate register from the main balance sheet. In this case, a bank has to adjust the amount equivalent to the written off default loans to the main balance sheet from the annual profit the bank earned.

The central bank introduced the loan write-off provision in 2003.

The official said that a bank could write off default loans. But it must show 100 percent provisioning for that. “So, loan write-off is a ‘loss’ to the bank.”

On the other hand, he said the list of defaulters of such loans was recorded by the Credit Information Bureau (CIB) of the central bank and those defaulters would not be allowed to take fresh loan from any bank.bdnews24.com

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