The banking system's default loans dropped 3.91 percent to Tk 52,519 crore in the second quarter of the year, much to the relief of the central bank.

Bad loans accounted for 9.67 percent of the total loans on June 30, compared to 10.47 percent in March.

Bad loans rose slightly during the January-March period due to political turmoil, said a Bangladesh Bank official. At March's end, defaults stood at Tk 54,658 crore.

However, in the following quarter the banks' realisation increased and they succeeded in bringing down the figure thanks to rescheduling facilities.

Between April 1 and June 30, defaults at all local banks, save for the foreign lenders, decreased from the preceding three months.

Specialised banks' soured loans fell 21 percent to Tk 5,827 crore, while that of state-owned commercial banks crore, declined 1.12 percent to Tk 22,400 according to central bank statistics.

The decrease in default loans at BASIC Bank is a major cause for the lower figures of state banks.

By the end of March, BASIC Bank's defaults stood at Tk 5,080 crore, or 57 percent of their outstanding loans. It dropped to Tk 4,308 crore, or 47 percent of outstanding loans, at the end of June.

An official of BASIC Bank said a lot of bad loans were rescheduled and showed as regular ones to make the bank's balance sheet look stronger. It was done as part of the bank's efforts to retrieve loans from bad borrowers.

A lot of BASIC Bank's funds that were later classified into bad loans funnelled out through forgeries during the previous management's regime, so more than Tk 3,000 crore was transferred to a block account to show a healthy balance sheet.

Besides, in continuation of the trend in the first quarter, default loans of most of the state-owned commercial banks increased in the second quarter.

Early this month, Bangladesh Bank also expressed dissatisfaction at the performance of these banks.

A high official of the central bank said the banks have a tendency to sanction large loans in violation of the prudential norms: they do not use the borrower's updated CIB report while granting loans. Also, at the time of rescheduling the loans they do not take down-payment, or even the partial amount, in clear violation of the central bank rules.

Defaults at private banks fell 1.12 percent to Tk 22,350 crore at the end of June. On the other hand, the foreign banks' bad loans increased 5.6 percent to Tk 1,942 crore.

In percentage terms, default loans of private banks were 5.6 percent of their outstanding loans, while that of foreign banks 8.75 percent. This means the overall performance of private banks improved markedly compared to foreign banks in the second quarter of 2015.

While the overall performance of private banks is very good, there are many banks where various irregularities are taking place just like in state banks, the BB official said. The central bank will intensify its monitoring of these banks, he added.