As feared, in the first quarter of 2021, the volume of outstanding loans increased significantly after the government partially lifted the moratorium on loans, which prevented the rating of borrowers from downgrading, even if they did not pay regular installments.
Non-performing loans (NPL) stood at Tk 95,085 crores in March, up 7.1% from three months earlier and 2.8% year on year, according to the Bangladesh Bank.
Analysts say the volume of bad loans would be much higher if the central bank completely canceled the payment holidays, which were introduced at the end of March last year, to help businesses weather an unprecedented crisis.
The object continued throughout 2020 as the pandemic showed no signs of extinction.
However, in March of this year, the central bank asked banks to extend support for deferred repayment until the first quarter of 2021 based on the relationship between the bank and the customer.
BB allowed borrowers who took out loans in three categories – term, demand and working capital – to receive loan deferral support.
“The volume of outstanding loans will increase in the coming months as businesses continue to face a slowdown in growth,” said Ahsan H. Mansour, executive director of the Bangladesh Institute for Policy Studies.
Many businesses are going through hard times due to the economic downturn, which resulted in an increase in non-performing loans in the first quarter.
Outstanding loans accounted for 8.07% of Tk 11.77,658 crore outstanding loans in the Bangladesh banking sector in March. In December, this figure was 7.66%.
Businesses are reluctant to expand their presence due to the worsening coronavirus situation, which means that the dire business sector will continue in the coming months.
“Banks need to bolster their reserve base to withstand the shock of slowing growth,” said Mansour, also a former employee of the International Monetary Fund.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said the banks were unable to treat many loans as defaulted in 2020 due to the moratorium.
“Lenders began to view the loans as problem loans after the central bank partially withdrew the line of credit,” he said.
In addition, according to him, some borrowers have entered the default zone due to the pandemic.
According to Rahman, the country’s small and medium-sized enterprises have been hit hard by the pandemic, and a significant part of the loans issued to the segment have already turned into overdue loans.
“The upward trend in outstanding loans will continue unless we can stop the spread of Covid-19.”
Md Arfan Ali, Managing Director of Bank Asia, said some borrowers who were doing well during the pandemic continued to pay regularly.
“Some persistent defaulters have abused central bank funds,” he said, adding that the moratorium should not be extended in the interest of the economy.
According to him, only borrowers affected by the pandemic should be able to take advantage of the moratorium.
Nearly 49 percent of bad loans belonged to nine state-owned banks, whose problem loans rose 2.59 percent to Rs 47,537 crore between January and March compared to the previous quarter.
Bad loans at 41 private commercial banks rose 3.64 percent to Rs 4,090 crore. Non-performing loans for nine foreign banks rose to Rs 2,458 crore from Rs 2,038 crore during this period.