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Mir Mosharref Hossain Pakbir

Default loans: Tactful action essential to cut risk for economic prosperity

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Mir Mosharref Hossain Pakbir

MNA Editorial Desk: The banking sector of Bangladesh has been in news for quite a long time as large scams came in front with loan defaults of millions. These scams are held responsible for the failure of this sector. Along with almost all the public banks, many private banks are suffering from huge default loans. Few large businessmen and industries are mainly liable for these default loans and it has become an attribute of the banking sector of Bangladesh today. Experts find it necessary to eliminate this problem to save this sector which will ultimately have significant impact on the economy. Debates are there over the process of reducing or eliminating this problem while keeping the industries alive and the government seems to be taking some steps against these loan defaulters starting from the larger ones.

Finance Minister AHM Mustafa Kamal revealed the names of the top 300 loan defaulters few days back in the parliament and assured that the government is going to take actions against these defaulters soon which may include the arrest of these defaulters. Bangladesh Bank also submitted a list of defaulters to the court but that was kept discreet. This is evident that some actions will be taken against these defaulters but question remains if those actions will bring any significant improvement of our economy. Hence, we need to think deep if we are walking on the right road which will safeguard our banking sector and the economy of Bangladesh while regaining the trust of people on our banks.
The finance Minister informed the parliament that the top 300 loan defaulters have defaulted loans of BDT50,942 crore at banks. He also provided a list of 14,617 individuals and institutions who have outstanding loans of over BDT5crore since 2009.These individuals and institutions have sanction limit of BDT1,741,348crore, outstanding loan of BDT784624 crore, classified amount of BDT110,541 and defaulted loan of BDT100,183 crore.

Experts opined that disclosing the names of defaulters will not be enough to arrest the rising default loans in the banking sector after revealing the list of 300 defaulters. The government placed a list of 100 defaulters in parliament last year and this time it disclosed the names of 300 defaulters. They also demanded exemplary actions against the defaulters whose names were disclosed which did not happen after placement of last year’s list. According to them, the Finance Minister should also place a report simultaneously if any punitive measure was taken against the defaulters within the period.

The new list of 300 defaulters, who hold less than 50 percent of the total default loans, has not painted the actual situation in the banking sector as the name of the influential persons who got stay order on their defaulter status from court was not revealed and a large amount of the loans are now pending with the courts. Disclosing this list of defaulters will have more of psychological effects on the defaulters rather than helping in recovery of these loans. Hence, the parliament should give a clear direction on how to realize the default loans.

The number of loan defaulters is growing in the country as there is no discipline in the banking sector. There are so many bank laws and rules to take action against loan defaulters but there is no execution of those. And the banks seem to be relaxed and they tend to use this as a tool while negotiating something with them. There is a huge panic over the banking sector scenario which is destroying the trust of people over banks as they are afraid to make deposits in the banks under the current context. But the truth is, though this situation is prevailing for the last few years, no banks were closed and nothing happened which can cause panic. Rather new banks got approved and came into operation and more are in the pipeline. If the scenario was so bad, then this was not supposed to happen.

When we opt to solute the problem of default loans, we have to keep few things in mind. Usually a business or a businessman takes loan from the bank to expand business. Business is a risky venture itself and it might succeed as well as fail. Some persons in the disclosed list might become defaulters due to suffering losses from operating business. The method to recover default loans should not be the same for all types of defaulters as some borrowers became defaulters for genuine reasons while some are wilful defaulters.

We must be hard to the wilful defaulters. Assets of the habitual defaulters should be confiscated. Even they have to be imprisoned. Rescheduling facility should be barred for them as the developed countries do not extend such scope to habitual defaulters. The Bankruptcy Act should be amended so that the genuine defaulters can get out of the mess, according to experts. Even in the US, the courts offer restructuring facility to the genuine defaulters under similar laws but show no leniency to wilful defaulters.

We must remember that, these entrepreneurs are real talents as they successfully developed and established a business. This is not an easy task. In this process, they create many employments which is especially very important in a country like Bangladesh. These large industrialists are genuine leaders as they lead a large team towards achievement and success. They have significant contributions towards the national economy. if we measure talent by success, we cannot deny their merits even if few of them lack academic education. As we have seen in different countries, the government tries to support these business leaders when required as helping them is actually helping the economy. If we arrest these people and their industries are shut down, then many people will lose their jobs, the government will lose tax revenue and fear of doing business in Bangladesh will spread. This cannot be good for the economy.

We do not recommend that the ones who are habitual defaulters should be cut loose. We are suggesting to support those who have become defaulters due to genuine reason and to put an effort to revive their business. If the government can create a policy which will help these defaulters to retain their business along with a rescheduling of loans, then it can be more profitable. Otherwise, with arrests and hassles which will open the doors for more corruptions, these businessmen will find out different scopes to escape and might even close down their business to migrate someplace else. We need to think about the welfare of the nation and must do whatever is in its greatest interest.

We have to focus on the causes of this sort of loan defaults first as elimination of these will automatically reduce the cases of loan defaults. Loan defaults are caused by political influence, association with insiders and corruption. In today’s Bangladesh, it is possible to receive a loan without proper business plans or resources if someone has significant political influence. Otherwise, these loans are issued if there is someone influential related to these loan defaulters. Lastly, corruption creates opportunity for the borrowers to default. The government should eliminate these things to reduce loan defaults. Without checking proper business plan and physical evaluation of resources, no loans should be approved. if required, the government should assign some independent agencies to evaluate the potential borrower’s background which will tell if he should receive loan or not. This sort of agencies exists in different countries and they make the works of the banks very easy.

The banks should run rigorous campaigns to retrieve these default loans. They cannot be laid back blaming everything on others. There must be some insider corruption as they have issued loans of such large amount without checking. If anyone involved is identified, he or she must receive exemplary punishment. If the loan default is for genuine or natural reasons, the banks should exercise loan rescheduling and should allow more chances for them to pay back. Otherwise, people will be afraid to borrow from the banks and that will have adverse impact over the economy due to less investment and less entrepreneurs inside the country in the upcoming years.

Our banks now should change their policy to support small scale businesses by taking interest in SME markets. A trend of small scale entrepreneurs setting up their own business is a common picture of Bangladesh today. Hence it is very important that the banks support this new trend which is going to be the financial attribute of Bangladesh in the near future. But logical, unbiased and proper check of relevant background must be ensured.

The economic fate of our nation must not lie in the hands of those who swindle the state out of resources. But we must not close the doors for those who really wanted to do business and are successful entrepreneurs. The government should employ independent ‘Administrator’ in these businesses with high loan defaults. The administrator should overlook the overall business process and the businesses must abide any logical suggestions of him to improve the business scenario.

Good intent is required. We must stamp out any move for an oligarchy of the corrupt, unethical and anti-national to sprout across the political landscape. We must induce policies which will lead towards overall welfare of this nation. We cannot push every business to be a successful one or should not spread fear among the entrepreneurs.

We must not keep on crying over the default loans and the conditions of the banking sector as those loans were passed by influence or corrupt practices and each scam should be investigated. Whatever we do, the priority must be national welfare. We hope the government and relevant authority will face this scenario with tact which will boost the banking sector of Bangladesh and will help in attaining all our development goals.

The writer is Chief Editor at Mohammadi News Agency (MNA), Editor at Kishore Bangla and Vice-Chairman, Democracy Research Center (DRC)

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