The amount of loan default was 16.34 percent of the banks' total outstanding loans in last September that shows a 1.29 percentage points decline over a nine-month period, thanks to the efforts of private banks and development financial institutions.

The nationalised commercial banks (NCB) have seen an increase in loan defaults in every quarter of those nine months mainly due to the huge amount of bad loans of the state-owned enterprises and agricultural debtors, NCB officials

claimed.

At the end of December last year, the amount of bad loans was Tk 18,726 crore or 17.63 percent of the outstanding loans. The amount came down to Tk 18,647 crore in last September when the volume of outstanding loans was Tk 1,21,677 crore.

In the NCBs and foreign commercial banks (FCBs), the volume of classified loans increased during the nine-month period. The NCBs have seen a rise in loan defaults by Tk 758 crore and FCBs Tk 2 crore.

On the other hand, the amount of private commercial banks' (PCBs)

loan defaults declined by Tk 25 crore and of development financial institutions' (DFIs) Tk 804 crore during the period, banking sources said.

The NCBs, despite the ongoing reforms under donor pressure, are failing to contain the steady increase in their loan default this year. NCB officials attributed it to another reason that is interest on the old default loan.

Besides, the government directive not to put pressure for realising agricultural loans has also contributed to the rising default loan. A

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Sonali Bank source said there is no improvement in the recovery of the state-owned enterprises' loans.

The loan default of the NCBs stood at Tk 10,713 crore in September, which was Tk 9,955 crore in December 2004. The amount of classified loan was 24.47 percent of the total outstanding loans at the end of last September.

The loan default of the PCBs stood at Tk 4,169 crore in September, which was Tk 4,194 crore nine months ago. The amount was 7.02 percent of the total outstanding loans, down by 1.51 percentage point from December 2004.

Loan default in most of the PCBs has decreased. Again, due to the close watch of the central bank as well as efforts of the private banks' management, things are improving in the problem banks as far as loan default is concerned.

Pubali and City Bank have recently come out of the problem bank status while United Commercial Bank has managed to cut down its bad loan by half.

Al Arafah Bank has come under close monitoring of the central bank

recently due to some internal problems and its conditions have been improving since then.

In September this year, the total loan default of the FCBs was Tk 110 crore or 1.41 percent of their total outstanding loan of Tk 7,040 crore. In December 04, the volume of default loan was Tk 108 crore in the FCBs.

Loan default in the DFIs have decreased by 8.24 percentage points to stand at Tk 3,663 crore in September. The reason is Bangladesh Shilpa Bank and Shilpa Rin Sangstha are hardly giving any new loans. Besides, they are writing off some old loans.

However in September 05, when the gross loan default was 16.34 percent, the net loan default was rather low at 8.07 percent. Since the banks' provisioning has risen against the loan default, the net loan default has decreased, a BB source said.

Net loan default is considered as the standard of determining bad assets internationally, the source added.