9 sectors hold 70% of bad debts
About 70% of delinquent loans in the banking sector are concentrated in nine sectors of the economy, as many borrowers struggle to pay installments due to the continuing economic downturn, while deliberate defaults are also a factor. major.
The nine sectors are shipbuilding and demolition, small and medium enterprises, leather, trade, textiles, ready-to-wear, transport, credit cards and non-banking financial institutions (NBFIs) .
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Non-performing loans in the sectors stood at 71,030 crore taka in December out of a total loan default of 101,935 crore taka, according to the Financial Stability Report released Monday by Bangladesh Bank.
The slowdown in business resulting from the coronavirus pandemic as well as the current economic crisis has hurt borrowers in all nine sectors. In addition, banks also extended loans without respecting corporate governance, which drove up NPLs.
In December, banks disbursed funds to the tune of Tk 20,236 crore for the shipbuilding and shipbreaking industry. Of the sum, 18.87% went wrong.
According to Syed Mahbubur Rahman, managing director of Mutual Trust Bank, banks generously extended loans to the shipbuilding and demolition industry in 2005-2006 as local shipyards won eye-catching export orders.
Existing companies have injected hundreds of taka crores to expand their footprint. New shipbuilders have also emerged. But it took a heavy hit after the 2007-08 financial crisis hit developed economies hard, bringing the industry to its knees and forcing many buyers to cancel orders.
As a result, borrowers in the segment were unable to repay the loans.
Although the BB has relaxed loan repayment rules for the shipbuilding sector from time to time, it has not yet changed its mind.
The export of ships, boats and floating structures was just $0.24 million in the past fiscal year, the lowest in a decade, according to data from the Export Promotion Bureau.
The shipbreaking industry is not doing well either.
Only 45 of Chattogram’s 158 shipbreaking yards are currently operational. Many shipbreaking yards are suffering losses this year as they have had to factor in the high costs of rising US dollar prices amid a depreciating taka.
Emranul Huq, chief executive of Dhaka Bank, says the deliberate defaulters have mainly caused problems for the shipbreaking sector, the second largest in the world after India in 2022.
Meanwhile, the cost of scrapping ships has risen in the global market, creating a major problem for local shipyards.
In December, loan defaults in the SME sector accounted for 13.14% of total funds disbursed by banks.
“Companies in the sector generally face various challenges. The coronavirus pandemic has compounded these challenges,” Rahman said.
“So some banks are slowing down the disbursement of loans going to the sector.”
Of the Tk 255,943 crore extended to the trade and commerce sector as loans, 10.84% went unrecoverable.
Banks have extended credit support, also known as trade loans, to traders to meet the financing needs of their day-to-day operations and to facilitate imports.
Rahman says fluctuating prices in the global market have created a difficult situation for companies, the main reason for the concentration of loan defaults in the sector.
Credit card users were responsible for 7.77% of bank credit that went bad. Credit card loans totaled Tk 7,078 crore.
A BB official said many credit card holders are struggling to survive amid the cost of living crisis, driven by rising consumer prices.
As in most countries, inflation has been rising for months in Bangladesh for a record surge in import bills, piling up pressure on consumers.
“The current economic stress has seen living standards deteriorate. And many cardholders are unable to repay loans on time,” the central banker said.
Some non-banking financial institutions also failed to repay loans to banks.
Some 7.39% of the total loans of Tk 7,297 crore extended by banks to NBFIs turned into bad debts.
A good number of NBFIs have faced a wide range of scams in recent years and their lending to borrowers has morphed into NPLs. Thus, their ability to repay depositors, including banks, has been considerably eroded.
Another major reason for the concentration of loan defaults in the nine sectors is the tendency of many lenders to break the rules when disbursing loans.
Out of Tk 12,18,850 crore loans across the banking sector, the overall delinquent loan ratio stood at 8.36% in December.
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