Small borrowers have better payment records than larger ones

18 December 2022

The recovery of loans from small defaulters is higher than those owing large loans. The parliamentary standing committee on estimates also found that small defaulters put up with more collateral while securing loans compared to larger borrowers. The findings highlighted the fact that small borrowers usually have much better repayment records than larger ones.
The parliamentary committee formed a sub-committee on January 3 last year to investigate the financial irregularities in Sonali Bank Ltd, Social Islami Bank Ltd (SIBL), the National Bank of Pakistan, National Finance Ltd and Premium Leasing & Finance Ltd. As part of the probe, the Bangladesh Bank studied the default loan situation of the banks and non-banks for the period between December 2020 and April 2022. The ratio of defaulters who borrowed more than Tk 10 crore was minimal, at 0.08 per cent. But they accounted for 67 per cent of the classified loans, meaning the defaulted loan was highly concentrated to a handful of defaulters. Of the bad loans, 33 per cent belonged to small borrowers. The probe found that the recovery rate of default loans at Sonali Bank was 7.59 per cent in the cases of small borrowers, versus 1 per cent in the case of large borrowers.
The collateral against the large loans was scanty at 63 per cent and this indicated that due diligence was not followed properly in the disbursement of the funds. There should be an exit policy as every businessperson or business will not be successful. At the same time, defaulted loans should not be spared. Experts said wilful defaulters should be brought to book and measures should be taken to recover the defaulted loans.
In the case of unintentional bad loans, the government should offer a certain period of time to recover them. Collaterals are not enough to stop the classification of loans and underscore the need for assessing the trade records of borrowers so that banks don't face any trouble in getting back funds. In some cases, the authorities show flexibility to defaulters because of their political links. This needs to be reviewed to speed up the recovery.

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