Some Tk 580 billion defaulted loans have been written off in the country’s banking sector in the last 18 years.

Banks have written off Tk 579.76 billion from 2003 to September 2021, which is 57.31 percent of the total nonperforming loans (NPL) at present, reveals the latest report of Bangladesh Bank.

Banking sector experts say banks have taken this path to keep their accounting book clean, but it is increasing real default loans although it pays off temporarily.

“With this, the defaulted loans are being concealed under the carpet,” commented Dr Moinul Islam, former director-general of Bangladesh Institute of Bank Management (BIBM).

“As a result, the total size of NPL in the banking sector is officially shown at Tk 1 trillion, whereas its actual size has gone past Tk 4 trillion,” he noted.

During the January-September period of the 2021 calendar year, Tk 9.74 billion was written off, but the collection of old and new written off loans stood at Tk 4.72 billion in the period.

Now, the total volume of such washed-out loans stands at Tk 436.09 billion, official statistics show.

In all these 18 years, six state-owned commercial banks have written off Tk 172.19 billion, while 41 private banks Tk 249.54 billion, nine foreign banks Tk 10.71 billion and three specialized banks Tk 3.65 billion, according to the central bank.

In contrast to the rising trend in the volume of washed-out loans from the account books, reclaiming of written-off loans is on the decline in recent years.

In the first nine months of 2021, banks reclaimed only Tk 4.72 billion which was Tk 7.36 billion and Tk 8.31 billion during the same period in 2020 and 2019 respectively.

According to rules, banks have to keep 0.25 to 0.5 percent provision against non-classified loans, while loan provisioning ranges from 20 to 100 percent in the case of NPL.

Usually, banks write off the defaulted loans repayment, chances for which are very thin. The written-off NPL can’t be rescheduled.

Banks have been writing off bad loans from 2003 in line with a central bank policy. Now, NPL can be washed out only in three years even though it was five years earlier.

Recently, the central bank has further relaxed its loan writing off policy, expanding its scope from Tk 50,000 to Tk 2 lakh with filing cases against the loan defaulters.

The government allowed the rescheduling of NPL by giving 2 percent down payment in 2019. The facility got some extensions on consideration of the Covid-19 situation and ended in December last year.

“Banks resort to writing off loans when all the ways of reclaiming the loans are closed. Loan recovery also loses pace because of litigation at financial loan court. However, they have to put the highest priority on the loan recovery,” said former BB governor Dr Salehuddin Ahmed.

Dr Moinul fears that a significant portion of the NPL might have been laundered abroad and said there is little chance for rescuing those loans without taking legal actions against the defaulters.