Banks can now write off agriculture and Small and Medium Enterprise (SME) loans worth up to Tk 500,000 without prosecuting the defaulters, the Bangladesh Bank has said.
Previously, the lenders were eligible to wipe out as bad debt defaulted loans worth up to Tk 200,000 without prosecuting the offender, if bringing charges was not mandatory.
The cost of fighting a legal battle after starting a case for defaulted small loans is often high, in some cases more than Tk 200,000 or the total outstanding amount, the central bank explained in a notice on Thursday regarding its latest move.
In a 2019 notice, the Bangladesh Bank said lenders must start a case under the Money Loan Court Act 2003 before writing off loans. The period after which banks can cancel the record of bad debt was reduced to three years from five years at that time.
The latest notice has kept other conditions of the previous notice unchanged, reports bdnews24.com.
In June, the national bank said loans issued to fraudulent and non-existing enterprises can be written off once the issues are settled through legal action.
Currently, default loans in Bangladesh’s banks total around Tk 1.13 trillion. Since 2003, banks wrote off loans worth Tk 0.58 trillion, or 51 per cent of the total defaulted loans.
Banks write off loans to clean up their balance sheets after setting aside adequate provisions. Once an account has been written off, it doesn’t show as an asset on the bank’s balance sheet, but efforts to recover the dues through bankruptcy proceedings or sale of bad loans continue.