Written-off loans reach Tk 48,053cr

AKM Zamir Uddin

The amount of loans written off by banks increased six times year-on-year to Tk 141 crore in the first quarter of 2018 as the lenders used a central bank policy to clean up their books.

This took the total written-off loans figure to Tk 48,053 crore since January 2003 when the policy was introduced.

Tk 24.76 crore was written off in the January-March quarter last year, according to Bangladesh Bank data.

Of the six banks that used the facility to clean up their balance sheets, Premier Bank topped the chart as it removed bad debts worth Tk 64 crore from its book. Eastern Bank wrote off Tk 55.42 crore.

State-owned banks wrote off Tk 22,618 crore and private banks Tk 23,825 crore in the quarter.

Two state-run specialised banks—Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank—wrote off Tk 555 crore and foreign commercial banks Tk 1,055 crore.

Between January 2003 and March 2018, Tk 48,053 crore were written off. Of the amount, 78 percent remained outstanding, meaning banks' efforts to recover the bad loans haven't paid off.

Banks prefer to avoid writing off bad loans as it is their primary assets and source of future revenue.

However, toxic loans that cannot be collected or are difficult to recover reflect very poorly on a bank's balance sheets and can divert resources from more productive activity. This leads banks to remove bad loans from their balance sheets and thus reduce tax liability.

A central banker, however, said banks usually do not write off bad loans in the first quarter as there is no rush to clean the balance sheets at the beginning of a year.

The banking sector wrote off Tk 1,875 crore in the October-December quarter last year.

As per BB rules, loans are written off after making adequate provisions to take advantage of tax benefits. But banks are obligated to continue their recovery efforts.

In order to write off, banks have to file lawsuits with the money loan court against defaulters and keep 100 percent provisioning.

The process to write off was not transparent as it was an attempt to prevent people from knowing the actual figure of default loans, Khondkar Ibrahim Khaled, a former deputy governor of the central bank, told The Daily Star yesterday. Banks write off loans to conceal corruption, he said.

“The central bank introduced the policy to show a decreased amount of default loans on banks' balance sheets with a view to presenting a positive picture of the country's financial sector to the international community,” he said.

Khaled said write-off loans are like uncollectible loans and the recovery process is highly difficult.

“So, banks should prevent corruption so that the vested quarter can't take loans through unethical process.”

Default loans rose by Tk 14,286 crore to Tk 88,589 crore in March this year compared to a quarter ago, showed BB data.

Default and write-off loans together totalled more than Tk 1.26 lakh crore at the end of March.

• Courtesy: The Daily Star/ Aug 19, 2018