The aggregate value of written-off loans in the country's banking sector is now over Tk 423 billion. The amount includes Tk11.20 billion written off during the first half of the current calendar year. Even a bigger amount of defaulted loans is likely to be erased from the banks' balance sheet at the end of the second half of the year.
The size of the written-off loans, it seems, would continue to bulge as the banks, as a matter of practice, try to give their financials a healthy look.
The practice of writing off loans by banks and financial institutions is universal. However, the problem arises when the size of the same continues to grow abnormally.
Banks in Bangladesh earlier were found to be reluctant to write off bad loans because of compulsory 100 per cent provisioning of the written-off amounts. Through an amendment to the Bank Company Act, 1991 a new provision was incorporated in 2001 to retain the claim of the banks over the written-off loans.
The banks are now required to write off the loans which have been classified as bad/loss for a period of five years or more and for which provisions are kept at the rate of 100 per cent. The relevant law, however, necessitates deployment of efforts by banks concerned to recover the written-off loans. The law also makes it mandatory for the banks to file cases with the courts of law against the borrowers who have defaulted on payment of loans prior to writing off bad loans.
The non-performing loans (NPLs) now represent more than 10 per cent of the total outstanding loans in the banking sector. Though despised much by the bankers the NPL is considered an inevitable development. But the development, particularly in the case of the state-owned banks, has been taking a heavy toll on the lenders concerned. More than half of the written-off amount belongs to the public sector banks.
The amount of bad loans that have been written off by the banks until now is quite big and the provisioning made against the same has come at the cost of banks' profitability.
In the case of private banks, shareholders are being deprived of their due amount of dividends because of the provisioning of classified loans and written-off amounts. Moreover, it creates distortion in the operations of the total banking industry. However, most part of the blame for this unwanted development goes to the bankers since the lack of due diligence during the sanctioning of loans is largely responsible for the unabated rise in classified loans in the banking sector.
Writing off any loan does not necessarily take away the right to claim or initiate actions, legal or otherwise, by the bank concerned for the recovery of the loan and interest accrued thereof. The Bank Company Act empowers banks to take actions for the recovery of classified or written-off loans.
It is important for the banks to take recourse to all necessary measures to recover the written-off loans. The question is: are the banks doing enough to get back the written-off loans?
For the outsiders it is very difficult to know the actual situation. But it is the job of the central bank to see that the legal provisions on this account are complied with. But until now the situation is found to be pretty difficult for the banks in the matters of following up the recovery drives.
Though the government has constituted Money Loan Courts (MLCs) for expeditious disposal of loan-related cases, the time taken by the courts in disposing of cases is not that short. The banks also find the execution of verdicts of MLCs rather difficult due to lack of cooperation from the law enforcing agencies and others concerned.
The engaging of asset management companies or private recovery agents remains yet another option for the banks. But that has not been availed of at the expected level by the banking institutions until now.
The fact remains that the asset management companies are finding the recovery job under the circumstances prevailing in Bangladesh quite difficult.
Allegations have it that some banks are found not as persuasive as they should be in the recovery drive even in the case of less toxic assets. So, they do not have any reason to be that aggressive when it comes to the recovery of written-off loans.
Some truth, if revealed, might prove to be more unpalatable. The size of the written-off loans would be even bigger since many banks deliberately avoid classification of a number of large loans as 'bad' ones, using a few handy tools available to them.