State banks progress in loan recovery

State banks look to be making much progress in recovery of their sizeable default loans, thanks to pressure from the central bank.In the first six months of 2013, the banks realised Tk 271.4 crore from their top 20 defaulters against the full-year’s target of Tk 562 crore and Tk 1,704 crore from their other defaulters against the target of Tk 4,817 crore.The targets were set by Bangladesh Bank (BB) earlier in the year to tackle the banks’ bloated bad loan portfolio and improve their financial health.If 40 percent of the target is recovered in the first half of the year it will be considered satisfactory, a BB official said. But the four banks managed to recover 48 percent from their top 20 defaulters and 36 percent from their other defaulters.The officials at the four banks—Sonali, Janata, Agrani and Rupali—credited their more than satisfactory performance to increased monitoring by the banking division of finance ministry and the central bank.A high official of Sonali Bank said around 36 percent of the bank’s classified loans are stuck with the 20 top defaulters. Sonali’s total classified loans stand at Tk 12,461 crore and the top 20 defaulters account for Tk 4,500 crore of the sum.Pradip Kumar Dutta, managing director of Sonali Bank, told reporters on Tuesday that the big defaulters are obtaining stay orders by filing writ petitions with the High Court, which is hindering the recovery from them.Although the banks have been doing well in terms of loan recovery, their capital shortfall and classified loans, the other indicators of financial health, are still high.However, a high official of the central bank said the banks’ capital shortfall in June decreased by Tk 277 crore from December 2012. During the same time, their classified loans fell by Tk 1,628 crore.The official said the central bank will review the banks’ performance against the 16 conditions in the memorandum of understanding (MoU) signed by the state banks earlier in the year, and will most likely make them stricter. He hopes by December the banks’ financial condition would improve further.A major condition for the release of next installment of IMF’s Extended Credit Facility (ECF) loan is that the MoU conditions are made more stringent.In the next MoU, the focus will be on making the banks’ credit disbursement policy tighter, the BB official said.A separate diagnostic review has been done for each of the four banks, and various steps which include reducing the number of loss-making branches, cutting down expenditure would be taken on the basis of the results of the review, he said.