Depreciable loans increased slightly in the second quarter of 2021, although they remain at a lower level thanks to the relaxation of the rules due to the coronavirus pandemic.
Between April and June, loans amounting to Tk 126 crore were canceled, according to data from the Bangladesh Bank. It was Tk 102 crore in the first quarter.
This means that it totaled Tk 228 crore in the first six months of 2021. Defaulted loans amounting to Tk 970 crore were taken off balance sheets throughout 2020.
Usually, loans are written off when fully funded and have no realistic prospect of collection. Thus, these loans are moved to off-balance sheet records, which reduces taxable income in the income statement.
Since the facility was introduced in January 2003, a total of Tk 57,249 crore has been written off.
Of the sum, 43,543 Tk crore went unrealized, while 13,706 Tk crore was recovered.
The tendency to cancel loans typically slows down in the first nine months of the year before rising in the last quarter.
Banks typically write off a substantial amount of defaulted loans in the last quarter to avoid taxation, a banker said.
Lenders levy corporate taxes on operating income after making an allowance for defaults and unclassified loans.
Banks must keep 0.25% to 5% of operating profit in the form of unclassified loans, 20% for sub-standard category loans, 50% for the bad category and 100% for the receivables category irrecoverable. It’s 100%. 100 for radiation.
Bad debts, including written off loans, totaled approximately Tk 138,787 crore as of June.
Mutual Trust Bank Managing Director Syed Mahbubur Rahman said the written off loans were essentially part of the process of regular bank cleanups.
“If the asset isn’t earning me any income, there’s no point in keeping it there.”
Many are raising the issue that banks cannot recover written off loans because they are not monitored properly, which Rahman says is a misconception.
Boards keep tabs on canceled loans and regularly brief the Bangladesh Bank on them, he said.
Rahman credited various government benefits, including payment waivers, for the decline in written off loans. No lawsuits have been brought against the borrowers as the courts were closed during the closings, he said.
“Previously, we could file cases if payments were unpaid for three years. Now, cases cannot be filed until borrowers pay off loans for at least five years.”
Agrani Bank chairman Zaid Bakht also attributed the easing of loan classification policy and lower lawsuits amid the pandemic to lower loan write-offs.
Although loans are wiped off balance sheets, that doesn’t mean banks are forgetting about them.
âEvery year we get a lot of money back as we continue to pursue borrowers,â said the former research director of the Bangladesh Institute of Development Studies.