Recovery of bad loans improves

Banks have made progress in recovery of their default loans in the last quarter of 2016, thanks to pressure from the central bank.

The loan recovery rate improved to 5.15 percent of total default loans in the October-December quarter of last year from 2.57 percent a quarter ago, according to Bangladesh Bank data.

Bankers attributed the progress to their intense efforts to show good profits and provide dividends to their shareholders as well.

Yet, the central bank was not happy as the recovery was insignificant compared to total default loans in the economy.

The central bank yesterday held a meeting with the top executives of 20 banks which were the worst performers in case of loan recovery in the July-September quarter. Deputy Governor SK Sur Chowdhury chaired the meeting. 

“The poor loan recovery may cause capital loss for banks, hindering the implementation of the Basel-III,” he said, referring to the globally accepted standards on capital and liquidity.

Banks were also suggested to set recovery targets for field level officials and provide them incentive if the target is achieved, said Chowdhury. Banks were also asked to place their loan recovery and classification statement to their board every three months. BB data shows banks recovered Tk 3,386 crore during the last quarter out of the total bad loans of Tk 65,808 crore. The amount retrieved in July-September was Tk 1,631 crore out of the default loans amounting to Tk 63,375 crore.

The tendency to file writ petitions at the money loan court by defaulters was blamed for the poor loan recovery by bankers at the meeting.

A top banker, who attended the meeting, said: “It is a common culture among defaulters that they file writ against their classified status and avail stay orders. Besides, a large number of cases are pending with the money loan court. So, the loan can't be recovered until the settlement of these cases.”

Bankers requested the central bank to issue an instruction to stop giving loans to defaulters who have remained unclassified thanks to the stay order, the banker said. “The bank launched an intensive recovery drive to declare a handsome dividend for the shareholders. As a result the loan recovery improved significantly at the end of the year,” said Golam Hafiz Ahmed, managing director of NCC.

He suggested all banks focus on loan recovery to make profits. At only 0.82 percent, the loan recovery from the written-off loans was worse compared to that of the classified loans.