to recover default loans. The burden of the ultimate liability of these expenses falls on the shoulder of good loan-receivers. So, the experts in the banking sector are advising the central bank to take necessary steps. The experts say that default loans cast direct impact on the interest rate of bank loans. Executive Director of Policy Research Institute Ahsan H Mansur told Kaler Kantho, “Default loans have direct influence behind the rise in the interest rate. To keep provision against this money, huge amount of money have to be kept idle. As a result, the profit of the bank falls. On the other hand, the banks increase the interest rate to adjust the money. The burden of this increased interest rate falls on the shoulder of good-loan recipients.” A report of Bangladesh Bank shows that the default loans of 56 banks stood at Tk 51,344 crore during the period from April to June. The amount is 10.75 percent of the total outstanding loans. The default loans include Tk 19,719.21 crore of state-run commercial banks, Tk 19,150.66 crore of private banks, Tk 11,051.98 crore of specialised banks and Tk 1,422.82 crore of foreign banks. It will not be possible to recover the lion’s share of the default loans. In 2013, the total provision of the banks stood at around Tk 25,000 crore. Last quarterly provision of various banks was Tk 4,003 crore. Nine banks were suffering from provision deficit. A large amount of provision is being reserved as against big amount of default loan. The BB’s financial stability report 2013 said 78.7 percent of the default loan fell under the category of bad loans. Most of these loans were granted by the state-run banks. The highest interest rate of term and current capital loan of big and middle industries was 18 percent. The amount of term and capital loan interest was 23.75 percent. The highest rate of interest in business sector was 18.50 percent while it was 19 percent in housing sector. On the other hand, a longstanding demand by the business leaders to reduce the loan interest rate is being ignored. The central bank failed to play important role to this effect. Some banks reduced interest rate as per their own initiative. But the effort is too small to keep any positive impact. Former FBCCI president and Mir Group chairman Mir Nasir Hossain said it is very difficult to run business paying the high rate of loan. The high production cost has aggravated the problem. The businessmen are being loan defaulters by counting high interest rate. The loan interest rate should come down to below 9 percent. Stating that default loans have created burden on the banking sector, Dr Salehuddin Ahmed, former governor of Bangladesh Bank said, “The amount of default loans has increased severely due to some state-owned commercial banks. It is necessary to create pressure on those banks for collecting loans otherwise default loans will not reduce.” The former BB governor said, “There are many cases piling up in the Arthorin Adalat. The banks cannot afford to keep on lawyers paying higher charges also. Several banks do not know the state of many cases.” Opposing refinancing capital in the state-owned banks, Dr Salehuddin said, “Government on various occasions poured a large amount of money for fulfilling the capital deficit of those banks. It is the duty of banks to meet the deficit capital. It is very awful to waste public money.” Dr Salehuddin Ahmed also advised that state-owned commercial banks will be freed from the political influence if the government wants to reduce default loans. Honest and efficient persons should be appointed as directors of the bank. Ahsan H Monsur said, “It is not possible to reduce default loans on behalf of Bangladesh Bank individually because some big borrowers of the state-owned and private banks have much influence. They took loans from banks by utilizing political power. But the central bank may try to reduce default loan through updated loan quality,” said this official of Policy Research Institute.
Thursday, September 11, 2014
Default loans raise interest rate:Daily Sun
to recover default loans. The burden of the ultimate liability of these expenses falls on the shoulder of good loan-receivers. So, the experts in the banking sector are advising the central bank to take necessary steps. The experts say that default loans cast direct impact on the interest rate of bank loans. Executive Director of Policy Research Institute Ahsan H Mansur told Kaler Kantho, “Default loans have direct influence behind the rise in the interest rate. To keep provision against this money, huge amount of money have to be kept idle. As a result, the profit of the bank falls. On the other hand, the banks increase the interest rate to adjust the money. The burden of this increased interest rate falls on the shoulder of good-loan recipients.” A report of Bangladesh Bank shows that the default loans of 56 banks stood at Tk 51,344 crore during the period from April to June. The amount is 10.75 percent of the total outstanding loans. The default loans include Tk 19,719.21 crore of state-run commercial banks, Tk 19,150.66 crore of private banks, Tk 11,051.98 crore of specialised banks and Tk 1,422.82 crore of foreign banks. It will not be possible to recover the lion’s share of the default loans. In 2013, the total provision of the banks stood at around Tk 25,000 crore. Last quarterly provision of various banks was Tk 4,003 crore. Nine banks were suffering from provision deficit. A large amount of provision is being reserved as against big amount of default loan. The BB’s financial stability report 2013 said 78.7 percent of the default loan fell under the category of bad loans. Most of these loans were granted by the state-run banks. The highest interest rate of term and current capital loan of big and middle industries was 18 percent. The amount of term and capital loan interest was 23.75 percent. The highest rate of interest in business sector was 18.50 percent while it was 19 percent in housing sector. On the other hand, a longstanding demand by the business leaders to reduce the loan interest rate is being ignored. The central bank failed to play important role to this effect. Some banks reduced interest rate as per their own initiative. But the effort is too small to keep any positive impact. Former FBCCI president and Mir Group chairman Mir Nasir Hossain said it is very difficult to run business paying the high rate of loan. The high production cost has aggravated the problem. The businessmen are being loan defaulters by counting high interest rate. The loan interest rate should come down to below 9 percent. Stating that default loans have created burden on the banking sector, Dr Salehuddin Ahmed, former governor of Bangladesh Bank said, “The amount of default loans has increased severely due to some state-owned commercial banks. It is necessary to create pressure on those banks for collecting loans otherwise default loans will not reduce.” The former BB governor said, “There are many cases piling up in the Arthorin Adalat. The banks cannot afford to keep on lawyers paying higher charges also. Several banks do not know the state of many cases.” Opposing refinancing capital in the state-owned banks, Dr Salehuddin said, “Government on various occasions poured a large amount of money for fulfilling the capital deficit of those banks. It is the duty of banks to meet the deficit capital. It is very awful to waste public money.” Dr Salehuddin Ahmed also advised that state-owned commercial banks will be freed from the political influence if the government wants to reduce default loans. Honest and efficient persons should be appointed as directors of the bank. Ahsan H Monsur said, “It is not possible to reduce default loans on behalf of Bangladesh Bank individually because some big borrowers of the state-owned and private banks have much influence. They took loans from banks by utilizing political power. But the central bank may try to reduce default loan through updated loan quality,” said this official of Policy Research Institute.
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