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The non-performing loans in Bangladesh’s financial sector increased by Tk 17,383 crore in 2022, allegedly due to the indifference of the government and Bangladesh Bank.
The defaulted loans soared to Tk 1, 20,656 crore at the end of December 2022 from Tk 1, 03,273 crore in the same period of 2021, according to Bangladesh Bank data released on Sunday.
The NPLs jumped to Tk 31,922 crore in December 2022 from Tk 88,734 crore in December 2020.
Despite promises from the government and the central bank to reduce default loans, bankers say the situation is deteriorating.
Of the total default loan, Tk 1,06,982 crore or 88 per cent turned to bad loans which the central bank apprehended were not recoverable.
Experts have expressed concern over the alarming and unstoppable surge in default loans, warning that it will have a devastating impact on both the banking sector and the economy.
They said that most of these default loans were wilfully taken, backed by the political, financial, and lobbying power of the borrowers.
The Bangladesh Bank has been criticised for its failure to rein in the default loan and for not playing its regulatory role in addressing the massive irregularities in the sector.
The defaulted loans, however, dropped by Tk 13,740 crore to Tk 1,20,656 crore in the September-December quarter from Tk 1,34,396 crore in the July-September quarter of 2022.
The total loan disbursed was Tk 14, 77,788 crore at the end of December 2022, and 8.16 per cent of them became classified.
The Executive Director of the Policy Research Institute of Bangladesh, Ahsan H Mansur, doubted if Bangladesh would be free from the pressure of bad loans anytime soon, citing the absence of disciplinary measures taken against errant defaulters.
He also said that, if calculated properly, the default loans could be of horrific size.
Mansur criticised the government and the Bangladesh Bank for their apparent indifference towards the most worrying matter in the banking sector.
Despite reports of loan sanctions against non-existent companies by several Islamic banks, the Bangladesh Bank did not take any action against those involved, he added.
Mansur feared that a large portion of the defaulted loans had been laundered abroad because they were taken under anonymous names, making recovery impossible.
M Masrur Reaz, the chairman and founder of Policy Exchange Bangladesh, stated that the growth in default loans had been increasingly high in the past few years and should have declined by now.
The rising volume of non-performing loans is expected to have myriad adverse consequences, including destroying the trust of depositors, which is resulting in reduced deposit growth in the banking sector, he said.
Moreover, it has reduced the capacity of banks to provide loans to good borrowers.
Reaz expressed concern as many borrowers took out loans without complying with minimum rules and regulations.
He stressed the importance of the government and Bangladesh Bank taking strong measures to stop the non-compliance of powerful borrowers and bank owners, who misuse their power.
Selim Raihan, the Executive Director of the South Asian Network on Economic Modelling, stated that the quantity of default loans had been rising continuously, primarily due to the lack of governance and accountability in the financial sector.
He said that there should be massive reforms in the banking sector to improve governance and reduce bad loans.
According to Raihan, political will is essential for the reform to take place.
At the end of December, the total amount of defaulted loans in private commercial banks had reached Tk 56,438 crore.
In December, the volume of such loans in state-owned commercial banks increased to Tk 56,460 crore.
The amounts in foreign commercial banks and specialised banks soared to Tk 3,048 crore and Tk 4,709 crore respectively, in December.
In 2020 and 2021, the borrowers enjoyed relaxed repayment terms due to the Covid pandemic, including a one-year moratorium.
The volume of defaulted loans was high at the end of December 2020, though banks were barred from downgrading loans against the repayment of only 15 per cent of dues.
Besides regulatory forbearance, the deterioration in the country’s economic situation has also affected the repayment capacity of some borrowers, leading to an increase in the volume of defaulted loans, experts said.
Bankers predict that the defaulted loan volume will increase further with the existing regulatory approach and the tendency of borrowers to avoid repayments.
According to financial analysts, if the written-off loans, the rescheduled loans, and the loans remaining unrecovered due to court proceedings are taken into account, the volume of default loans would be much higher.
A large amount of defaulted loans has put pressure on banks’ liquidity and profitability as most of their income comes from interest on performing loans, experts said.
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