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NBFI delinquent loans jumped to 37.45% in Q1’22

Total loan defaults of non-banking financial institutions (NBFIs) for the period January-March this year stood at Tk 14,232 crore, or about 20.63% of total loans disbursed till the end of March.

It is also 37.45% higher year-on-year (YoY), according to the latest quarterly Bangladesh Bank Financial Stability Assessment report.

In just three months, delinquent loans in this sector increased by Tk 1,216 crore, or 9.34% more.

The amount of delinquent loans in the previous quarter (October-December 2021) was Tk 13,016 crore.

According to central bank data, the sector’s total loan defaults stood at Tk 10,354 crore at the end of March 2021, which was only reduced by Tk 25 crore in the following quarter (April-June).

In the July-September quarter of the same year, defaulted loans jumped from Tk 1,429 crore to Tk 11,757 crore and from Tk 1,259 crore to Tk 13,016 crore in the October-December quarter.

An insider said at least half of NBFIs are currently in dire financial straits, while many are struggling with up to 50-90% of their total loans in default.

With the withdrawal of the loan repayment facility, known as the moratorium, the number of new defaulters increased again.

Banking sectorhealth is deteriorating

In the banking sector, the situation of delinquent loans is even worse.

According to Bangladesh Bank, delinquent loans in the banking sector jumped 19.3% year-on-year in the first quarter of 2022, just under Tk 2,847,000,000 to reach the highest delinquent loan amount. high ever recorded in the country.

In September 2019, the highest ever amount of overdue loans was recorded at Tk 116,288 crore.

After the first quarter of 2022, Non-Performing Loans (NPL) reached Tk 113,441 crore.

Even Finance Minister AHM Mustafa Kamal, in his budget speech last week, acknowledged that loan defaults were one of the major impediments to the development of an efficient and modern banking system.

AB Mirza Azizul Islam, an economist and financial adviser to a caretaker government, said the increase in delinquent loans was an old habit among borrowers.

“If defaulters are repeatedly given benefits and the term of the loan is extended and a one-time installment facility is granted, it will lead to an increase in the list of defaulters,” he also said.

He further stated that to get rid of defaulters, effective measures must be taken immediately.

If you don’t, borrowers will take advantage. As a result, other borrowers will not be interested in repaying the loans, he added.

FY23 Budget Proposal on Delinquent Loans

The government has proposed in the budget for the fiscal year 2022-2023 an income tax on unpaid interest on defaulted loans disbursed by banks and financial institutions.

Previously, neither companies nor individuals had to pay this.

Finance Minister Kamal said, “We are continuing our efforts to get out of the culture of default. They benefit from rescheduling leeway on payment of a down payment of only 2%. Capitalizing on the policy, up to 13,307 borrowers returned their regular loans.”

According to the central bank, Tk 1,578 crore of loan interest was forgiven in the Covid-hit year 2020 and Tk 1,855 crore in 2021.

Don’t cancel overdue loans, BB tells NBFIs

On June 7, Bangladesh Bank asked NBFIs not to cancel delinquent loans defrauded by scammers.

Legal action must be taken against the crooks, who embezzled NBFI funds under the guise of taking out loans, according to a Bangladesh Bank advisory.

According to the central bank sources, some scammers have recently taken out loans from NBFIs by showing non-existent companies that have already dealt a blow to corporate governance in the NBFI sector. The central bank recently discovered that a group of NBFIs had canceled non-performing loans (NPLs) taken out by scammers.

According to the rules, NBFIs can write off delinquent loans, which have remained in the wrong NPL category for at least three years.

NBFIs must maintain at least 100% bad debt provisions.

The weakness of the NBFI sector was exposed after PK Halder and his associates laundered about Tk 2,500 crore from three NBFIs – International Leasing and Financial Services, Peoples Leasing and FAS Finance and Investment.

On the run for about two years, Halder was arrested in India last month.

He was the former Managing Director of Reliance Finance and NRB Global Bank.