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Loads of default loans of private and public banks get caught in legal cobweb and go ballooning over Tk 2.07 trillion by the end of March this year, sources say, compounding problems in Bangladesh's banking industry.
In the first quarter of this year (January-March 2023), sixty banks filed 14,650 new cases with claims to Tk 274 billion as they failed to recover the default loans, according to a latest report of Bangladesh Bank (BB).
The total number of such cases with Artha Rin Adalats (money loan courts) had risen to 214,282 until then, and the aggregate claims stood at around Tk 2.07 trillion.
Economists and analysts say such bad loans weaken Bangladesh's banking system.
However, loan recovery by different courts across the country came to Tk 44.34 billion only during the period under review, the report states, adding that Tk 67.89 billion was recovered through alternative dispute resolution (ADR) mechanism.
People familiar with the process have said the banks often sanction loans "arbitrarily", without keeping in mind that the credits will have to be recovered.
They noted with dissatisfaction that "pressures from bank directors or politicians often force the bankers to lend without merits and that creates such huge bad loans".
Such loans are approved by the banks against inadequate collateral.
"Not only are loans sanctioned in connivance with each other against fake and forged documents in many cases but also loans are given by showing a much higher rate than the actual value of the mortgaged property.
"Fake papers often lead to problems in selling related assets," many a sector-insider said.
As a result, even if the concerned court settles the case, the recovery rate does not rise as expected, they pointed out.
Mal-governance, poor capacity, insufficient money loan courts, protracted case proceedings and stay orders are on a long list of drawbacks attributed to this logjam of unsettled cases, according to them.
Md Mesbaul Haque, executive director and Bangladesh Bank spokesperson, has said the amount of such loans is higher than the actual classified loans as banks have to calculate the interest on unpaid loans.
"The BB is always directing both private and public banks to monitor their concerned lawyers closely to settle the cases speedily," he says about the regulator's role play.
"After lawsuits are filed, the banks have nothing to do with the legal procedure with the related courts but rather supervise the case in an efficient manner," Haque adds.
Until December 2022, the number of cases pending with the courts was 72,189 by then against huge dues, as claimed by banks, amounting to more than Tk 1.66 trillion, BB data said. Until June 2022, the number of cases was 69,369 by then against huge dues, as claimed by banks, amounting to Tk 1.53 trillion, the BB data showed.
Earlier, until December 31, 2021, the central bank data had shown the number of cases pending with the money loan courts at 68,271 against the dues claimed by banks at Tk 1.43 trillion.
The loan courts, which were set up in 2003 to help expedite resolution of disputes between banks and their clients over loan repayment, are overburdened and seem to be losing gear.
Syed Mahbubur Rahman, Managing Director (MD) and CEO of Mutual Trust Bank (MTB), says the number of cases and loads of defaulted loans caught in the courts are soaring owing to rising non-performing loans (NPLs).
The central bank's pressure and concerned banks' aggressive stance to recover the loan lead to such ballooning cases, he told the FE, admitting that filing cases by his bank was also surging recently. He suggests that the banks concerned should understand the business properly before sanctioning any loan to reduce the extent of 'ghost' loans.
"Legal loopholes in settling the cases should be removed as some 8-10 years are needed to settle a lawsuit, which is hurting the loan- recovery process greatly," says the MTB MD.
Welcoming the recent amendment of the Bank Company (Amendment) Act 2023, Mahbubur also suggests that the purpose of any law should be made generalised without aiming for exceptions. Regarding ADR, he suggests strengthening the capacity of arbitrators regarding the execution of loan recovery.
"Due diligence on part of some banks may help stop swelling the volume of such dud money," he adds.