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Political unrest sends loan defaults soaring

Rejaul Karim Byron, The Daily Star

Loan defaults in the first quarter of 2013 were uncharacteristically high, due mainly to political unrest.
“Loan defaults tend to go up in the first quarter following the December closing, but this year’s rise is higher than normal,” a managing director of a private bank said, preferring not to be named.
On March 31, the total amount of defaults stood at Tk 51,019 crore, an increase of 19.4 percent from the quarter that ended on December 31, 2012, according to data from the central bank.
“The frequent shutdowns, particularly in the last two months of the quarter, which caused stagnation in trade and commerce, account for the increase in defaults,” Khondker Ibrahim Khaled, a former deputy governor of Bangladesh Bank, told  the press.
Nurul Amin, chairman of the Association of Bankers Bangladesh, and Zaid Bakht, research director of Bangladesh Institute of Development Studies, echoed Khaled’s views.
Between January 1 and March 31, the state-owned commercial banks experienced a Tk 2,788 crore increase in defaults, while the private commercial banks’ defaults rose by Tk 4,844 crore.
The foreign commercial banks saw their default loans increase by Tk 214 crore, and the specialised banks by Tk 348 crore.
“The localised strikes enforced in different parts of the country caused as much damage as the nationwide shutdowns. They severely hamper the smooth functioning of trade and commerce,” added the manager director. “Consequently, many good borrowers have ended up in the red.”
The various scams that took place last year also had a role to play in the rising amount of default loans, according to Bakht, also a director of Sonali Bank.
“The banks are now financing very cautiously. As a result, many genuine borrowers were unable to get rescheduling facility — and thereby became defaulters.”
Following the Hall-Mark scam last year which centred on bill purchase, many good businessmen were denied their payments in time, which led them to default as well.
Furthermore, many bank officials said the inspection drive by the central bank towards the end of last year led to the unearthing of many defaults, all of which were reflected in the first quarter’s figure.
In 2012, a lion’s share of the default loans was in the state-owned banks, particularly the Sonali Bank, because of the various scams that took place.
Interestingly, of the four state-owned commercial banks only Sonali Bank was able to cut its default loans down by Tk 300 crore, in the first quarter of 2013. Sonali Bank’s default loan total now stands at Tk 11,746 crore. “The fall in default loan was due to a pick-up in recovery,” Pradip Kumar Dutta, managing director ofSonali Bank, told the journalists..
During the quarter, Dutta said the bank has recovered Tk 1,503 crore, whereas it managed only Tk 846 crore in the whole of the last year.
“The liquidity situation of Sonali Bank has much improved this year. We have not borrowed from the call market or the central market at all; rather, we lent them money.”
But loan defaults rose at three other state-owned commercial banks: Janata, Agrani and Rupali.

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