Home | Bangladesh | ‘Cancer’ of bank loan defaults spreading alarmingly
Experts urge government to appoint more judges to the Money Loan Court, a special court dealing with loan defaults, to make it more effective.

‘Cancer’ of bank loan defaults spreading alarmingly

WT24 Desk

Expressing concern over the growing trend of bank loan defaults, experts at a major banking conference on Monday urged the government to appoint more judges to the Money Loan Court, a special court dealing with loan defaults, to make it more effective, agencies report.

“It takes huge time to settle a default loan case in a court. Default loan cases are increasing, but they are not being settled due to a shortage of judges,” observed Mirza Azizul Islam, former advisor to a caretaker government, while speaking on the closing day of the International Conference for Bankers and Academics 2016.

The Bangladesh Institute of Bank Management (BIBM) organized the 2-day conference in association with the Australian Academy of Business Social Science.

Mirza Aziz said it is now a common phenomenon that many banks issue loans for their clients to run a particular business. But the clients ‘divert’ the loan for other purposes. “Finally, these loans become default”.

Former chairman of Sonali Bank SA Chowdhury and former managing director of Pubali Bank Helal Ahmed Chowdhury each conducted a session on Monday.

Mirza Aziz said some of the banks restructured the loans of some big clients responding to their appeal. But the government should pursue the legal process to recover the default loans.  He also stated Bangladesh has too many banks in relation to the size of its economy.

Expressing his surprise over the bank spread (difference between interest rate on loans  received by a bank and interest rate on deposits paid by a bank) being set at 5 percent, he said it is not ‘comprehensible’ how it was fixed and who fixed it. “The spread should not exceed a limit of 3 to 3.5 percent,” he said.

Chief economist of the World Bank’s Bangladesh Mission Zahid Hussain said default loans have become “a cancer in the banking system”. “The regulatory authority has to come forward first to contain this cancer,” he said, in a veiled reference to Bangladesh Bank.

Observing the limitations of the existing law regarding default loans recovery, he said the legal process is not effective in recovering a default loan. If the legal process is strengthened, it could play a role to contain default loan culture, he noted.

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