Provisioning shortfall reduces loan write-off by banks

A media report says that the practice of loan write-off by banks has nosedived as the lenders’ ability to keep 100 per cent provisioning against delinquent assets has declined amid business slowdown caused by the coronavirus pandemic. Usually, loans are written off when they are entirely covered by cash and there is no realistic prospect of their recovery. These assets are shifted to off-balance sheet records to show as if banks have no or only small amount of bad loans to improve
their image. But recent central bank data showed the write-off incidence has significantly declined to Tk 1,945 crore between January last year and September this year compared to Tk 2,597 crore during the same period in 2019 and Tk 3,523 crore in 2018 respectively. The reason behind this is the majority of banks are unable to write off bad loans since they are struggling to survive amid a lower cash flow compared to pre-pandemic time.
 We would say loan write-off is a bad practice which is done using provisioning money against bad loans after they remain stuck in the default zone for three years. In fact delinquent borrowers take banks’ image hostage by avoiding loan repayment while they work from behind scenes to pressure banks to write off their bad loans. Powerful people or big business houses use their political clout to avail the pardon while banks make good the losses by using funds earmarked against bad loan provisioning. In fact banks allow such write-off using their own money to bail out defaulters from obligation of loan repayment.
We would say it is a thuggish practice in which wealthy business houses go without loan repayment. This is another syphoning of bank money but anarchic political situation is allowing it to continue. Banks are not in a good shape as a good number of borrowers are not repaying loans. This may be one of the main reasons behind the lower amount of written-off loans during the pandemic period. The Banks’ total provision shortfall widened to Tk 6,204 crore in September, up 50 times in contrast to Tk 123 crore in December last year and 135 per cent year-on-year.
Our suggestion would be that better financial condition of banks can’t be treated as a way to go for more write-off. The question of writing off banks’ loan will have to be a banking necessity for an otherwise good business. Keeping the defaulters in jail is no help either to realise the loan or save the business. Do not mix corrupt politics with banking concessions.
Transparency and accountability must work in dealing with depositors money to save the banking system. And the bank officials should be punished for playing politics with banks’ money.

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