Dhaka, Bangladesh (BBN) – Bangladesh’s written-off loans increased by 2.72 per cent or BDT 11.20 billion in the first six months of the current calendar year as banks tried to clean their balance sheets by reducing loads of classified loans.
The cumulative amount of loans written off by the banks rose to BDT 423.22 billion as on June 30, 2016 from BDT 412.01 billion on December 2015. It was BDT 376.45 billion a year before, according to the central bank’s latest statistics.
However, the amount of written-off loans increased by 2.22 per cent or BDT 9.21 billion to BDT 423.22 billion during the second quarter (Q2) of the current calendar year from BDT 414.01 billion in the preceding quarter.
During the April-June 2016 period, the amount of written-off loans by six state-owned commercial banks (SoCBs) rose to BDT 220.48 billion from BDT 220.31 billion as on December 31 last. It was BDT 220.42 billion in the Q1 of this calendar year.
However, a total of BDT 189.38 billion was written off by 39 private commercial banks (PCBs) during the period under review against BDT 179.10 billion six months ago. It was BDT 180.41 billion as on March 31 last.
Loans written off by nine foreign commercial banks (FCBs) rose to BDT 7.80 billion in the Q2 of 2016 from BDT 7.06 billion in Q4 of the last calendar year. It was BDT 7.64 billion in the Q1 of this calendar year.
Two development finance institutions (DFIs)’s written-off loans remained unchanged at BDT 5.55 billion in the Q2 of this year.
“The rising trend of written-off loans indicates lack of due diligence while sanctioning the credits,” a senior official of the Bangladesh Bank (BB) explained.
He also said writing off loans is a global practice that helps the banks to show their financial soundness. “But it will depend on capability of the bank concerned to write off its bad loans. This is because 100 per cent provisioning is required before writing off any loan.”
Most of banks have already taken various measures, including appointing private recovery agents, to recover our written-off loans. But the result was not satisfactory, according to bankers.
“The overall legal process will be reformed as early as possible to expedite the recovery of such loans,” a senior official of a leading private commercial bank (PCB) noted.
The central bank of Bangladesh introduced guidelines for writing off classified loans in 2003 aiming to improve loan recovery and make the financial statements of banks more transparent and accountable.
Under the existing provisions, the bad-loan portfolios remaining for a period longer than five years will come under the provision of writing off bad loans.
Before making any final decision in this regard, the bank management has to ensure 100 per cent provisioning against the amount to be written off.