Media reports have it that banks of the country decided to furnish particulars of major loan defaulters to the Directorate of Passport and Immigration and also the matter of furnishing the same to the Anti-Corruption Commission was being actively considered. This was obviously done as part of the banks' efforts to recover the long lying non-performing loans. It was undoubtedly a well conceived move primarily designed to stop the loan defaulters from fleeing the country.
The default loan situation of the country is alarming to say the least as some of the leading borrowers are also the major defaulters. Tk 520 billion has been identified as bad loans which is about 65 per cent of total loans disbursed by the banking sector of the country. The top 25 offenders have a combined bad loan of Tk 100 billion against their names. It is the highest compared to other countries in the region. Non-performing loans account for only 1.71 per cent of total loans in Nepal. The figure is higher in India but is yet to reach double digits. In stark contrast, over 50 per cent of total loans disbursed by the Basic Bank and the Bangladesh Development Bank Limited (BDBL) are classified loans.
The Bangladesh Bank sued the major defaulters who have been evading penalty through loopholes in the legal system. Banks attributed the situation to lack of adequate benches and judges in financial courts as there is no separate bench for financial courts in the High Court division of the Supreme Court.
Most of the financial institutions are short of funds, their main source, at present as banks are in liquidity crisis. It was not like this a few months ago when banks had liquidity surplus and had to lend money to financial institutions at reduced interest rates to keep down operating losses. An unhealthy competition is already on to attract deposits at varying interest rates and if it continues for some time longer, it will make things worse further.
According to latest BB statistics, interest rate against deposits came down to 4.9 per cent in September last year and price inflation at that time was 65.12 per cent. Considering price inflation only, interest rate was actually negative. On the other hand, the government is collecting funds from the people against savings certificates at an interest rate of 11 per cent. As depositors are losing interest in banks they are buying savings certificates for higher rate of interest. Some are also investing in capital market which is directly impacting upon growth of bank deposits. According to the BB, growth of bank deposit which was close to 13.5 per cent in August 2016 came down to 10.14 per cent in 2017.
Banks and financial institutions apprehend diversified crises as growth in loans is rising and actually recorded an increase of 19 per cent against growth of deposits of 10 per cent. This means money is not being utilized for the purpose it was borrowed, growth of deposits is decreasing and since deposits are decreasing, liquidity crisis is mounting. At the beginning of the last year surplus liquidity of banks was around Tk 1500 billion which came down to Tk 700 billion by the year end, the lion's share of which is stuck in long-term government borrowings.
Bangladesh Bank sources revealed that financial institutions have sought its help to release bonds with tax relief as an alternative measure and they have been advised to consider reintroduction of housing fund under refinancing scheme. It may be mentioned that earlier the BB introduced a Tk 5.0 billion fund for purchase of flats at 9.0 per cent rate of interest.
We saw in the past that various moves by the authorities ended up as abortive attempts and the banks involved could not recover one hundredth of the non-performing loans they had extended. What needs to be ensured is all such moves are to be complemented and supplemented by appropriate action. Otherwise it will ultimately end up as another abortive move.
