Defaulted loans: collapses in cash collection

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Cash collection on overdue loans declined sharply in the first quarter of this year as business activities of besieged customers in Bangladesh worsened due to economic hardship resulting from the Covid-19 pandemic.

Banks collectively recovered Tk 1,585 crore, down 23% from three months earlier and 7% from a year ago, according to data from Bangladesh Bank.

Lenders are also struggling to settle pending cases with money lending courts, as many are unable to conduct their normal business due to strict restrictions on movement, bankers said. .

This had a negative impact on the recovery process.

Banks typically recoup more than Tk 2,000 crore of their delinquent loans per quarter, but their efforts began to hit a roadblock when Covid-19 hit the country’s shores in March last year.

A Bangladesh Bank official said delinquent loans at banks increased alarmingly in the first quarter at a time when cash collection on non-performing loans (NPLs) was drastically declining, sounding the alarm bells and whistles. a possible threat to the banking sector.

NPLs stood at Tk95,085 crore in March, up 7.1% from three months earlier and 2.8% year-on-year.

The trend gave an indication that defaulted loans could pile up more in the coming days, the central bank official said.

Sohail RK Hussain, managing director of Meghna Bank, said cash collection from unclassified loans and non-performing loans has been slow in recent months due to the downturn in business.

Banks typically make a fair amount of default lending by settling cases associated with money lending courts, he said.

But movement restrictions from time to time have made it difficult for court operations to run smoothly, he said.

The number of unresolved cases in court is on the rise, which has a negative impact on the recovery of NPL funds, Hussain said.

In some cases, defaulters file petitions in court to show that their loans are unclassified, after which banks normally rescind summons, he said.

“But, we are facing difficulties in canceling the writs,” he said.

Banks must get help from law enforcement to take possession of land provided by defaulters as collateral for their loans, he said.

“We recently received a court order to take back land. But the bank has not been able to get the required support from law enforcement,” he said.

Law enforcement officials are now spending busy hours containing the pandemic, he said.

The weak recovery could continue at least until the third quarter of this year, he said.

If the pandemic situation worsens further, cash recovery will face further hurdles in the days to come, Hussain said.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said the slow recovery was not unexpected given the current situation.

Banks usually have a big campaign in the last quarter of every year, he said.

For this reason, the bad debt recovery saw momentum between October and December of last year despite the pandemic.

But the trend of loan recovery has fallen short of expectations as the pandemic has hit businesses, he said.

Against this backdrop, defaulted loans could rise further in the coming days, Rahman said.

Md Abdus Salam Azad, managing director of Janata Bank, said some of the banks’ major defaulting debtors had previously pledged to provide a lump sum for the repayment of their loans.

“They have not repaid the loans because the pandemic has further worsened their business performance,” he said.

Private commercial banks recovered Tk 642 crore from defaulters in the first quarter of this year and state commercial banks made Tk 167 crore.

Defaults of specialized development banks repaid Tk 750 crore while besieged borrowers of foreign banks gave Tk 26 crore.

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