Banks can write off loans up to Tkfive lakh in agriculture, cottage, micro, small and medium enterprises, and other sectors without prosecuting the defaulters, Bangladesh Bank has said.
The Central Bank has approved this relaxation in the loan write-off policy to reduce the defaulted loans of the banking sector.
On Thursday, the Banking Regulations and Policy Department of Bangladesh Bank issued a circular in this regard to the Managing Directors (MDs) and Chief Executive Officers of all Scheduled Banks.
Previously, the lenders were eligible to wipe out defaulted loans as bad debtup to Tk 200,000 without prosecuting the offender, if bringing charges was not mandatory. The cost of fighting a legal battle after starting a case for defaulted small loans is often high, in some cases more than Tk 200,000 or the total outstanding amount, the central bank explained in a notice on Thursday regarding its latest move.
In a 2019 notice, the Bangladesh Bank said lenders must start a case under the Money Loan Court Act 2003 before writing off loans. The period after which banks can cancel the record of bad debt was reduced to three years from five years at that time.
The latest notice has kept other conditions of the previous notice unchanged.
In June, the national bank said loans issued to fraudulent and non-existing enterprises can be written off once the issues are settled through legal action.
Currently, default loans in Bangladesh’s banks total around Tk 1.13 trillion. Since 2003, banks wrote off loans worth Tk 0.58 trillion, or 51 percent of the total defaulted loans.
Banks write off loans to clean up their balance sheets after setting aside adequate provisions. Once an account has been written off, it doesn't show as an asset on the bank's balance sheet, but efforts to recover the dues through bankruptcy proceedings or sale of bad loans continue.
According to the latest data of the central bank, in the first quarter of 2022, the loan disbursements from January to March were Tk 529 crore.
Besides, banks have written off Tk 59.63 crore and collected Tk15.64 crore.
At September-end, 2022, the total debt of the banking sector was Tk 14.36 lakh crore. Out of this, the defaulted loan was Tk 1.34 lakh crore, which was 9.36 percent of the total loan. The bank's actual non-performing loans are now higher if the written-off loans are taken into account.