Summary: 

Banks in the country wrote off over Tk 7,319 crore in bad loans during the financial year 2022-23 to reduce their defaulted loans and improve the state of their balance sheets. However, the recovery process for such loans was not good, which resulted in an increase in the total amount of bad loans. 

Content:

As per the latest data released by Bangladesh Bank, the total amount of bad loans written off by banks has increased to Tk 67,721 crore as of June 30, 2023. This is up from Tk 60,402.42 crore on June 30, 2022 and Tk 56,889.87 crore on June 30, 2021. In Bangladesh, banks are legally allowed to write off bad loans since 2003. Interestingly, the banking sector has been able to recover Tk 17,435 crore from the bad loans they had previously written off. The recovery increased merely Tk 393 crore against additional Tk 7, 319 crore of written off loans in a span of a year. The figure for outstanding write-off amount was Tk 50,286 crore at the end of June 30, 2023, which increased by Tk 7, 926 crore from the previous year. 

The Bangladesh Bank released data that shows a significant increase in the amount of loans that have not been repaid. As of June 2023, the total amount of defaulted loans had reached Tk 1, 56,039 crore. This is a significant increase from the amount in March, which was Tk 1,31,620 crore, and the amount in December 2022, which was Tk 1,20,656 crore. As per the Financial Stability Report of 2022 by the central bank, the distressed assets in the banking sector of the country have amounted to Tk 3,77,922 crore. The figure excludes the loans that have been left unclassified by court orders.

Bangladesh Bank officials mentioned that the distressed assets have put pressure on the liquidity and profitability of the banks as their primary income comes from interest on performing loans. Regulations by Bangladesh Bank require banks to maintain a provision of 0.25 to 5 percent for unclassified loans. Substandard loans require a provision of 20 percent, doubtful loans require a provision of 50 percent, and bad or loss category loans require a provision of 100 percent.

Banks are required to set aside a certain amount of money to cover the losses from loans that they don’t expect to be repaid fully. This is called a provision for Non-Performing Loans (NPLs) or written off loans. Recently, it has been observed that the number of such bad loans has been increasing at an alarming rate. Banks have to write off more loans each year. This means that they are categorizing more loans as bad loans that are unlikely to be repaid. When banks write off loans, they remove them from their financial records, which help them to manage their finances better. This approach enables banks to resolve non-performing loans by removing them from their records instead of dealing with them as persistent defaulting problems.

Picture and Article Source: The New Age Bangladesh