Default Loans to Aggravate Banks' Profit: Fitch Solutions

Fitch Solutions Inc. is an international company that provides  financial services, recently published a report on banking sector of Bangladesh. The report explains how the profitability will further aggravate as soon as the facility of paying loan instalments expires as the banks will have to keep aside a huge amount of their income as provision against the default loans. This observation came in a report titled " COVID-19 woes perpetuating weakness of the Bangladesh banking sector."- on 26th October. 

The report explained that, non-performing loans will increase just after the deferment facilities given by Bangladesh Bank, especially to a poor economic environment. 

As a part of the crisis mitigation strategy and to help the businesses to during this pandemic Bangladesh Bank primarily instructed the banks to provide installment deferment facility to all borrowers for six months from Jan-1 to Jun-30 on March 19, 2020. However, this facility extended in two phases till December, 2020. But, the central bank did not give any waiver from maintaining required provision against default loans. Most of the senior banker explicate this as a wrong decision, as the sector seem stable this year, but there will be a hike of default loans as soon as the banks resumes their loan classification. Which will ultimately leads to higher provisioning costs for the banks. 

The amount of defaults loans has increased by Tk. 3,606 crore during April-June quarter despite the waiver of loan repayments during the pandemic. 

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