The recovery in default credit has failed to keep pace with escalating overdue assets in Bangladesh, hurting banks’ revenues and cash flow.

Between January and September the banks withdrew Tk 4,195 billion from their bad loans, which was Tk 3,751 billion in the same period a year ago, according to data from the central bank.

However, the recovery is much less than pre-pandemic levels, which is hindering the smooth operation of banks as their lending capacity has become tight.

Banks got back Tk 5,802 billion from their combined NPLs in 2020, compared to Tk 15,466 billion in the previous year.

Although the central bank has had a relaxed credit classification policy since the coronavirus pandemic began last March, the move has not reduced non-performing loans.

By September of this year, non-performing loans stood at Tk 101,150 billion, an increase of 14 percent compared to nine months earlier and 7.1 percent year-on-year.

Emranul Huq, managing director of Dhaka Bank, blamed the slowdown in business caused by the pandemic for the negative impact on liquidity recovery.

Quite a number of companies are reluctant to repay loans despite comfortable cash flow thanks to the recovery, he said.

Failure to obtain sufficient cash from default loans is primarily a burden on banks’ revenues and forces them to hold more provisions.

“With this in mind, we have decided to take strict action against defaulting borrowers from January who do not repay their loans by December.”

Dhaka Bank will do everything, including filing criminal cases, to reclaim the default loans as part of its efforts to improve financial health, Huq said.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said the weaker recovery has forced banks to raise lending rates and reduce their reinvestment capacity.

In such a situation, the financing costs usually rise sharply, which ultimately puts good borrowers under pressure.

“We have to hold a higher provision against the bad loans. Therefore, banks have to set a higher lending rate in order to secure profits,” said Rahman.

In addition, depositors’ money gets stuck because banks fail to collect the bad loans.

“The banking sector is now in a vicious circle because the funds are lower compared to pre-pandemic times. This will ultimately affect our incomes,” Rahman said.

During the height of the pandemic, normal operations of the courts were disrupted, making it difficult to settle cases quickly before the money credit courts, he said.

Banks are also facing tough jobs due to the economic slowdown in order to get regular loans back.

Abul Kashem Md Shirin, managing director of Dutch-Bangla Bank Ltd, said that the banks are now paying more attention to reclaiming the unclassified loans than the reclaimed loans.

“At the height of the pandemic, lenders were unable to dispatch staff to urge defaulters to repay. This has brought the recovery of funds from the bad loans to a lower level, ”he said.

Six state-owned banks – Sonali, Janata, Agrani, Rupali, BASIC, and Bangladesh Development Bank – raised $ 584 billion in the first nine months of this year.

The default loans at the banks amounted to Tk 44,016 billion in September.

Private banks received back Tk 2,093 billion, a decrease of 11 percent from a combined default loan of Tk 50,743 billion.

Nine foreign banks realized Tk 88 billion in the reporting period compared to Tk 21 billion. The banks’ non-performing loans amounted to Tk 2,692 billion.

Three specialized banks managed to get back Tk 1,429 billion from defaulting creditors, compared to Tk 792 billion in September last year when they were faced together with Tk 3,699 billion NPLs.

A BB official said some defaulters have frequently secured court suspension orders to identify their default loans as unclassified assets.

In addition, many defaulting borrowers, with the approval of the central bank, refinance their bad loans through a down payment, albeit a negligible amount, he said.

This has made the problem more difficult for banks to take on bad loans, he added.