Dhaka, Bangladesh (BBN)– The amount of classified loans in the banking sector of Bangladesh reached an all-time high of nearly BDT 1.0 trillion in September ahead of the upcoming national polls.

The volume of non-performing loans (NPLs) jumped by nearly 34 per cent to BDT 993.70 billion as on September 30, from BDT 743.03 billion as on December 31, 2017 despite close monitoring of the central bank. It was BDT 803.07 billion a year ago,

However, the amount of NPLs increased by more than 11 per cent or BDT 100.30 billion to BDT 993.70 billion during the third quarter (Q3) of this calendar year from BDT 893.40 billion in the preceding quarter (Q2).

The share of classified loans also rose to 11.45 per cent of the total outstanding loans during the period under review from 9.31 per cent nine months ago, according to the central bank’s latest statistics.

The default loans include substandard, doubtful and bad/loss of total outstanding credits, which stood at BDT 8,680.07 billion as on September 30, 2018, from BDT 7,981.96 billion as on December 31, 2017. It was BDT 7,527.30 billion as on September 2017.

Senior bankers as well as experts said the amount of classified loans in the banking system has increased during the period under review, as some borrowers did not make repayment of installments against their rescheduled loans.

They also said a portion of restructured large loans has already turned into classified ones that also pushed up the overall volume of NPLs in the banking system.

The central bank cleared proposals of 11 business groups for restructuring their large loans amounting to around Tk 153.26 billion.

A total of 22 commercial banks had earlier forwarded the proposals to the Bangladesh Bank (BB) for approving the loan restructuring on behalf of their clients.

A senior executive of a leading private commercial bank (PCB) indentified that political intervention has worsened the corporate governance in the banking sector, suggesting that the government should promptly take action to restore discipline in the financial sector.

He also said legal complexities are one of the impediments to recovering the default loans from habitual defaulters.

Another expert said the high NPL ratio indicates that money is now being laundered abroad frequently, which has already left an adverse impact on the balance of payments (BoP).

Former BB governor Salehuddin Ahmed recommended that the next government should address the issue with top priority to keep continue the country’s ongoing economic activities. “Entire economy may face a negative impact, if the country’s banking sector is in trouble.”

On the other hand, BB executive director and spokesperson Md. Serajul Islam expects that the volume of NPLs will decrease in the final quarter of this calendar year,”

He also said the commercial banks will have to strengthen recovery drives across the country to reduce their volume of NPLs.

During the period, the amount of NPLs with six state-owned commercial banks (SoCBs) rose to BDT 480.80 billion, from BDT 373.26 billion as on December 31, 2017. It was BDT 428.52 billion in Q2 of this calendar year.

On the other hand, the total amount of classified loans with 40 PCBs reached BDT 436.66 billion in Q3, from BDT 293.96 billion in the final quarter of last year. It was BDT 389.75 billion as on June 30.

The NPLs of nine foreign commercial banks (FCBs) rose to BDT 23.82 billion during the period under review, from BDT 21.54 billion in Q4 of 2017. It was BDT 22.71 billion in Q2 of 2018.

The classified loans with two specilised banks (SBs), however, came down to BDT 52.41 billion in Q3 of 2018, from BDT 54.26 billion nine months before. It was BDT 52.41 billion in Q2 of this calendar year.

Talking to the BBN, Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh (ABB), said the volume of NPLs will be reduced in the Q4 of 2018 following strengthening overall recovery drives.