Banks waive huge interest

Interest waivers against bad loans more than doubled to Tk 1,753 crore in 2017, with National Bank alone accounting for 37.13 percent of the sum.

In 2016, the banks waived Tk 764 crore, according to data from the Bangladesh Bank.

Economists and bankers said such waiver is unethical and impacts good borrowers adversely. It also encourages habitual defaulters as they will think they too can get waivers of interest accrued on their loans.

"This huge exemption of interest on bad loans indicates that banks did not follow due diligence while sanctioning the loans, especially in the last few years," said Khondkar Ibrahim Khaled, a former deputy governor of the BB.

It could be that the banks were compelled to give exemption so that they can recover the principal amount of loans, he said.

"But the practice of giving waiver erodes the banks' net profits and also creates a provisioning shortfall for them."

The central bank should strengthen its monitoring on the issue so that no bank can exempt loans or interests wilfully, he added.

Of the banks that offer the facility to defaulters, National Bank, which topped the list for loan rescheduling last year, was on the top of the list as well.

It is followed by Bangladesh Krishi Bank (Tk 192.19 crore), Rupali Bank (Tk 184 crore), Social Islami Bank (Tk 77.38 crore) and Sonali Bank (Tk 61.38 crore).

Banks were allowed to give exemption to borrowers in line with the central bank directives but such facilities were usually managed by the wilful defaulters, said a BB official.

Private banks waived interest of Tk 1,234 crore last year, up from Tk 451 crore a year earlier, according to data from the BB.

Interest waived by the six state-owned banks -- Sonali, Janata, Agrani, Rupali, BASIC and Bangladesh Development Bank -- soared 61 percent year-on-year to Tk 319 crore last year.

The two specialised banks, Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank, waived interest of Tk 194 crore last year, up 78.27 percent from a year earlier.

Interest waived by the nine foreign banks increased 4.45 percent to Tk 6.80 crore in 2017. Banks generally waive interest on grounds of bank-customer relationship to recover the defaulted loans quickly, said Syed Mahbubur Rahman, managing director of Dhaka Bank.

But the banks should not deduct the cost of fund while waiving the interest, he said.

"Full interest waiver is not expected for a particular client as it will not bring any good outcome," Rahman added.