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The public, private and foreign commercial banks wrote off around Tk 106.00 billion non-performing loans (NPLs) until June 30 last.
This has reduced the amount of default loans in the banking sector.
The Bangladesh Bank (BB) introduced guidelines for writing off of the classified loans in 2003 aiming to improve the loan recovery and make the financial statements of banks more transparent and accountable.
According to the BB's provisional statistics, four nationalised commercial banks (NCBs) had written off Tk 35.50 billion and five specialised banks, Tk 28.22 billion until June 30, 2006.
A total of Tk 41.00 billion was written off by private commercial banks (PCBs) while foreign commercial banks (FCBs) wrote off Tk 1.50 billion during the same period.
The central bank statistics showed that ratios of gross and net classified bank loans were 22.13 per cent and 18.07 per cent respectively of the total outstanding amount of loans by the end of 2003.
However, the ratios stood at 13.55 per cent and 9.79 per cent respectively by the end of 2005.
But the ratio of gross loans increased to 15.38 per cent and net classified loans declined to 8.59 per cent at the end of March 2006.
The amount of default loans stood at Tk 207.16 billion by the end of March last from Tk 175.09 billion by the end of December 2005 in gross terms while the amount of default loans increased to Tk 107.16 billion from Tk 86.06 billion respectively in net terms.
"We were expecting a decline in the volume of default loans last June because the amount of loan writeoffs increased substantially," a senior BB official told the FE Saturday.
However, if fresh loans turned into default ones during the period, it would have little impact on the volume of overall classified loans in the banking sector, he added.
"But the scope of turning fresh loans into default ones is now limited due to close monitoring by the central bank," the official observed.
Besides, the enactment of revised Money Loan Court Act, introduction of the provision for writing off of bad loans and tightening of monitoring by the central bank are contributing significantly to reduce default loans in the banking sector.
The new amended Money Loan Court Act, billed as more creditor friendly, should help improve the recovery of default loans substantially, sources said, adding a similar amendment to the Bankruptcy Act will facilitate reasonably quicker and orderly exit of insolvent business.
Under the existing provisions, the bad loan portfolios remaining for a period longer than five years will come under the provision of writing off 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.
The central bank also 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.
Under the regulations, the banks will have to submit applications in prescribed forms to the Department of Off-site Supervision (DOS) of the central bank seeking permission for writing off of such loans.
On the other hand, the banks will have to file suits against the defaulters to recover the loans in line with the directives of the Banking Regulation and Policy Department (BRPD) of the central bank.
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