Staff Correspondent:

Bad loans in Bangladesh’s banking sector hit a record Tk 420,335 crore at the end of March as a clearer picture of the toxic loan is coming to light following the political changeover in August last year.
At the end of March, toxic loans more than doubled from a year earlier, even as total loan portfolios grew just 6.2 percent, shows central bank’s latest data. In the first three months of the year, bad loans rose by Tk 74,570 crore.
As of March, total loans in the sector stood at Tk 17,41,992 crore, 24.13 percent of which had turned sour, as per BB data.
However, distressed assets — which include written-off loans, rescheduled loans and loans tied up in the money loan court — are likely to surpass Tk 700,000 crore, according to BB officials.
The defaulted loans have increased due to various reasons, including: rescheduling of the maturity period of term loans through a central bank circular; classification of large loans of certain clients as substandard by the Bank Inspection Department of the central bank; non-rescheduling of clients’ current loans; failure to repay instalments of rescheduled loans on time by clients; and charging of interest against existing classified loan accounts.
The future is very uncertain due to various internal and external factors, said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.
“We knew that the defaulted loans would increase, and the central bank governor had said that it would be around 30 percent.”
The business and economy will face a number of challenges in the coming days due to some external factors, including war, which will likely push inflation further, said Rahman, also the former chairman of the Association of Bankers Bangladesh (ABB).
“Besides, there are some internal uncertainties, and amid this situation, who will invest here? The outlook is not good now,” he added.
As of March, defaulted loans at state-run banks stood at Tk 146,407 crore, which was 46 percent of their total disbursed loans. Bad loans at private banks stood at Tk 264,195 crore, or 20.16 percent of their disbursed loans, central bank data showed.
Besides, defaulted loans at foreign banks stood at Tk 3,239 crore, which was 4.83 percent of their disbursed loans.
The specialised banks’ defaulted loans stood at Tk 6,494 crore, or 14.47 percent of their total outstanding loans, as per BB data.
The banking sector also faced a provisioning shortfall of Tk 170,666 crore. Provisioning is required against the bad loans.
Bad loans have increased sharply in some Shariah-based banks controlled by the controversial business conglomerate S Alam Group and in some other banks where Awami League-affiliated businesses had influence, said central bank officials.
Some large borrowers, including S Alam Group and Beximco Group, defaulted heavily after the Awami League’s fall, pushing the total to an unprecedented level.
Bad loans may have increased largely due to the change in the definition of classified loans, said Mustafa K Mujeri, Executive Director of the Institute for Inclusive Finance and Development.
“We heard that the definition of classified loans was changed in line with international standards, which pushed up the bad loans. We do not know whether the current loans became defaulted or the loans disbursed under the previous government defaulted.”
He went on to urge the interim government to take strict action to arrest the high amount of bad loans.