Even with relaxed repayment, banks waive interest of Tk 1,855 in 2021
Despite eased repayment facilities and fairly business as usual, banks waived Tk 1,855 crore in interest on loans in 2021, which is Tk 277 crore more than the previous year.
Top banking experts have called the increased loan forgiveness a “bad signal” for the industry as efforts to verify loan defaults become futile.
They said banks needed to provide customers with a bigger cushion during the Covid 2020 hit, as respites included waiving more interest and easing repayment facilities. But the continuation of unusual installations at a time when businesses were almost usual is totally unacceptable.
According to Bangladesh Bank, banks waived interest of Tk 1,194 crore in 2018, while the figure rose to Tk 2,293 crore next year. It dropped slightly to Tk 1,578 crore in 2020 and climbed again to Tk 1,855 crore last year.
Former central bank governor Salehuddin Ahmed said some big borrowers, who are also on banks’ boards, have essentially benefited from the interest waiver.
“Businessmen from other countries can hardly influence the boards of banks. But the situation in Bangladesh is completely opposite, which ultimately results in weakening of good governance in the corporate sector,” he said. he noted.
No borrower was labeled as defaulting throughout 2020 even though they failed to pay installments thanks to the central bank’s relaxed repayment policies aimed at protecting businesspeople affected by Covid. In 2021, businessmen could avoid default by repaying only 15% of loans.
But the policy easings resulted in unbridled default lending totaling more than Tk 1.03 crore at the end of 2021, which is Tk 14,539 crore more than in 2020.
“Banks have waived interest to collect bad debts. But on the contrary, the debt is in default just after a few months,” a banker told Business Standard on condition of anonymity.
Referring to the increase in loan defaults, the banker said loan recovery in 2021 stood at Tk 4,500 crore which is less than Tk 5,802 crore in 2020.
However, Selim RF Hussain, Managing Director of Brac Bank, argued for an interest waiver and said it was better than nothing if banks could get some of their money back by offering the facility.
Meanwhile, rising loan defaults, coupled with more loan write-offs, are dampening bank profits, as written-off loans require 100 percent loan provisioning.
Since the introduction of the facility in 2003, a total of Tk 58,468 crore has been written off till December 2021. Banks have written off more than Tk 2,440 crore till December 2021, while the year’s amount previous was Tk 970 crore.
Selim RF Hussain said write-offs help banks keep balance sheets clear.
“A lot of people think that banks are keeping deposit money for loan write-offs. In fact, banks are provisioning with their operating profits,” he added.
According to the central bank, ten banks failed to maintain their capital base at the end of 2021 with their capital shortfall amounting to Tk 34,639 crore.