Default loans on rise: Problem to continue as long as sluggish trend in business prevails, emergency remains in force ( Bangladesh )

BUSINESS REPORT

The amount of default loans with the country's banking sector has increased further. The non-performing loans amounted to Tk 25,000 crore at the end of June this year. The default loans have increased by Tk 2,700 crore in the last one year. Economists and bankers think that default loans have shot up mainly for three reasons-sluggishness in trade and business, high rate of interest on bank loans and two consecutive natural calamities.According to the loan classification and provisioning report prepared by Bangladesh Bank on the basis of the data sent by the country's 48 commercial banks, the volume of classified loans stood at Tk 24,997 crore or 13.02 per cent, out of Tk 1,92,037 crore outstanding loans, on June 30 of this year, compared to Tk 22,624 crore or 13.23 percent on December 31 of last year. The overall situation has aggravated further due to ballooning of classified loans in the government-owned commercial banks.Earlier, the classified loans reached Tk 23,838 crore on March 31 of this year, which was Tk 22,624 crore on December 31 of last year. Classified loans in government-owned commercial banks stood at Tk 15,289 crore or 33.13 percent of outstanding loans, which had been Tk 13,791 crore or 29.27 percent on December 31, 2007.Of the government-run banks, the extent of Sonali Bank's default loans has increased during the six-month period--from Tk 6,860 crore in December 2007 to Tk 8,547 crore in June 2008.The default loans of Janata Bank, the second largest state-owned commercial bank, stood at Tk 1,965 crore until June this year, while the non-performing loans of Agrani Bank, the third largest state-owned commercial bank, which is still in red, stood at Tk 2,992 crore up to June this year.According to the central bank, default loans increased by Tk 832 crore and Tk 36 crore in the private and foreign commercial banking sectors respectively.Default loan as percentage of total loan is below five percent in 27 private banks. However, default loans of ICB Islamic Bank, Bangladesh Commerce Bank, and Uttara Bank amount to 69.37, 28 and 9.36 percent of their total loans.The central bank sources said the percentage of ICB's default loans of its total loans is very high, adding that the bank is now performing very well under its current management.Default loans in private commercial banks added up to Tk 5,753 crore or 4.94 percent of outstanding loans in June 2008, which was Tk 4,921 crore or 5.01 percent in December 2007.Classified loans in specialised banks stood at Tk 3,725 crore or 26.21 percent of outstanding loans in June '08, compared to Tk 3,716 crore or 28.58 percent in December 2007.The size of default loans in foreign commercial banks stood at Tk 230 crore or 1.51 percent of outstanding loans in June against Tk 194 crore or 1.43 percent in December of last year.According to former Deputy Governor and present Chairman of the Board of Directors of Bangladesh Krishi Bank Khandaker Ibrahim Khaled, the main reason behind shooting up of classified loans with the banking sector is sluggish trend in trade and business due to declaring the State of Emergency in the country. "It's natural that a borrower loses the ability to repay his loans if his business is affected in any way," he said."In such a situation, many entrepreneurs have closed down their industries and factories. Many enterprises have become sick. So, the influences of these negative aspects have fallen on banks' loan recovery drives."Khaled thinks that the classified loan situation will improve if a constitutional government can restore confidence in business and trade after coming to power through the coming election. "Lack of confidence will continue to prevail whatever efforts are made by the government keeping the State of Emergency in force," he observed.