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Six state-owned commercial banks altogether recovered a nominal amount of their written-off loans against the government targets during the first quarter of the current calendar year, show Bangladesh Bank data, as a former central bank governor has accused bankers of not being serious enough about loan recovery.
The six state-owned commercial banks -- all fully or majority-owned by the government -- are Sonali Bank, Bangladesh Development Bank Limited (BDBL), Basic Bank, Agrani Bank, Janata Bank and Rupali Bank.
Sonali Bank, BDBL, Basic Bank, Agrani Bank and Janata Bank only recovered 0.8 per cent, 0.15 per cent, 1.89 per cent, 3.50 per cent, and 4.57 per cent of their targets, respectively, in the January-March quarter. Rupali Bank, however, collected 53.86 per cent of its target during the first three months.
"Bankers at state-owned banks appear reluctant and lack seriousness in collecting written-off loans," said former Bangladesh Bank governor Salehuddin Ahmed. "They receive salaries and allowances regularly regardless of the deteriorating financial health of these banks."
Mr Ahmed added that borrowers from state-run banks are often influential and many fail to repay their loans. This leads to a hefty portion of disbursed loans becoming classified (non-performing) and eventually written off after a set period.
He suggested strengthening loan recovery efforts, including complying with central bank directives on the matter.
The total amount of written-off loans by state-owned commercial banks was Tk 181.17 billion in March 2024, down slightly from Tk 182.46 billion in March 2023.
The breakdown of written-off loans by bank in December 2023 was as follows: Sonali Bank over Tk 66.11 billion; Janata Bank Tk 32.42 billion; Agrani Bank Tk 39.41 billion; Rupali Bank Tk 5.67 billion; Bangladesh Development Bank Tk 13.27 billion; and Basic Bank Tk 24 billion.
Already burdened with heavy NPLs
The six banks are struggling under the weight of a large volume of non-performing loans (NPLs) -- an earlier stage of loan write-off.
Central bank data from March showed that the six state-owned commercial banks had Tk 858.70 billion in NPLs. These loans can eventually turn into bad debts, leading to a further rise in overall NPLs.
Sources in banking circles indicate that the NPL situation in the sector has been worsening for the past one and a half decades.
Banks are required to set aside provisions for a certain percentage of these loans on their balance sheets. The central bank scrutinises written-off loans quarterly.
If someone borrows money from a bank and can't pay it back, the bank considers the loan a bad debt because getting their money back seems unlikely. This is called a written-off loan. It is like removing the loan from the bank's "good stuff" list and marking it as a loss.
There are stages before a loan gets written-off. If the borrower misses payments for a while, the loan becomes non-performing. This is like a warning sign for the bank. They might try to work with the borrower to get them back on track, but if things do not improve, the loan could eventually get written-off.
The more non-performing loans a bank has, the more likely they are to write some of them off.
"While written-off loans can improve the short-term picture of a bank's balance sheet, they reduce capital base and profits in the long run. These loans also have a negative impact on a bank's business and investment activities," said a high-ranking official from the Bangladesh Bank.
BB concerned, asked banks multiple times for more recovery
Sources say the authorities, including the Bangladesh Bank, are concerned about the rising amount of written-off loans, particularly bad debts, in the banking sector.
The BB has repeatedly urged banks to step up efforts to recover classified loans, according to sources. The central bank issued specific directives to state-owned commercial banks to address the issue of bad debts effectively.
Sources in concerned quarters raised concerns about influential individuals, wielding political or other forms of clout, who obtain loans from banks, particularly state-owned ones, without proper scrutiny of their credit applications. They noted that if banks yield to pressure and grant loans without due diligence, a large chunk of such loans become classified and very difficult to recover.
Sources added that some businesses and entrepreneurs struggle to repay loans and accrued interest due to financial or other difficulties.
In a high-level meeting last month chaired by the FID secretary, the Financial Institutions Division (FID) instructed state-owned commercial banks to take strong action to reduce the burden of NPLs and written-off loans, which seriously impact the overall financial situation.
The BB further relaxed its loan write-off policy in February this year as part of its strategy to reduce the high volume of bad loans in the banking sector. The revised policy allows banks to write off defaulted loans categorised as bad or loss for two years, down from the previous requirement of three years.