Dhaka, Bangladesh (BBN)- Bad loans, the worst category of the non-performing loans (NPLs), in the country’s banking sector increased by 32.68 per cent to BDT 423.53 billion in the first nine months of this year due to most of the banks’ failure in recovering such loans amid rising financial irregularities.
The bad loans rose to BDT 423.53 billion as of September 30, 2014 from BDT 319.20 billion as of December 31, 2013. It was BDT 394.45 billion as of September 30, 2013.
As of September 30, 2014, the bad loans accounted for 73.92 per cent of the total NPLs of BDT 572.91 billion in the banking sector of Bangladesh, according to the central bank statistics.
There are three types of NPLs — sub-standard, doubtful and bad and loss.
If any borrower fails to pay instalment of any loan in three months, the loan will be considered as sub-standard (SS), according to the Bangladesh Bank (BB) regulations.
Banks will have to keep 20 per cent provision against such loan up to next three months.
For a doubtful loan, the instalment duration is between six and nine months and banks will have to keep 50 per cent provision against such loan.
If any borrower fails to pay instalment for nine or more months, it will be classified as bad loan and banks will have to keep 100 per cent provision against such loan.
The BB data showed that the classified loans in the banking sector increased by BDT 167.08 billion in the first nine months of this year as the central bank had recently unearthed a number of scams at different banks that fuelled the overall NPLs.
Besides, some banks misused the central bank’s relaxed loan rescheduling policy that resulted in the surge in defaulted loans and it also pushed up the bad loans during the period under review.
On December 23 last year, the central bank relaxed the loan- rescheduling policy for the next six months to facilitate financing of the businesses affected by political unrest.
Under the relaxed policy, the commercial banks regularised loans worth more than BDT 170 billion by taking the central bank relaxed rescheduling facility, according to a central banker.
“The huge amount of bad loans would put an adverse impact on the banks’ profitability by the end of this calendar year as they (banks) would have to keep 100 per cent provision against such loans,” the BB official explained.
BBN/SSR/AD-23Nov14-10:00 am (BST)