The writing off of bad loans has significantly increased in recent years leading to a fall in the volume of classified loans in the country's banking sector.
The public, private and foreign banks combined had written off Tk 95.16 billion from the non-performing loans (NPLs) until September 30, 2005 in the banking sector, official sources said.
On the other hand, the amount of NPLs dropped by 4.08 percentage points over the last calendar year to 13.55 per cent of the total outstanding loan portfolios, sources in the Bangladesh Bank (BB) said.
The amount of total NPLs fell by Tk 12.16 billion during the period.
The gross NPLs as on December 31, 2005 dipped to Tk 175.09 billion. It was Tk 187.26 billion one year ago.
According to the BB's statistics, four nationalised commercial banks (NCBs) had written off Tk 30.21 billion until September 30, 2005 while five specialised banks Tk 28.14 billion.
A total of Tk 35.65 billion was written off by 21 private commercial banks (PCBs) out of 30 while seven foreign commercial banks (FCBs) out of 10 had written off Tk 1.12 billion during the same period.
Under the existing provisions, the bad loan portfolios remaining for a period longer than five years will come under the provision of writing of bad loans. Before making any final decision in this regard, the bank management has to ensure 100 per cent provisioning against the amount to be written off.
Besides, the central bank allows the commercial banks to write off default loans before filling cases against the defaulters with prior permission from the BB.
But the banks have to take all preparations like publishing auction notices in the newspapers for filling suits against the defaulters.
According to the regulations, the banks will have to submit application in prescribed form to the Department of Off-site Supervision (DOS) of the central bank seeking permission for writing off such loans.
On the other hand, the banks will have to file suit against the defaulters to recover the loans in line with the directives of the Banking Regulation and Policy Department (BRPD) of the central bank.
In 2003, the central bank introduced guidelines for writing off of the classified loan aiming to improve the loan recovery and making the financial statements of banks more transparent and accountable.
"The regulations have contributed to recovery of the default loans as well as reduce the amount of such loan portfolios in the banking sector," a BB senior official told the FE.
The enactment of revised Money Loan Court Act, introduction of the provision for writing off of the bad loan and tightening of monitoring by the central bank are contributing significantly to reduction of NPLs in the banking sector.
The new revised Money Loan Court Act, billed as more creditor friendly, should help improve the recovery of default loans substantially, sources said, adding a similar revision of Bankruptcy Act will facilitate reasonably quicker and orderly exit of insolvent business.