THE Financial Stability Report 2023 of the Bangladesh Bank paints a disturbing picture of the banking sector that deteriorated rapidly during the Awami League regime. The total amount of distressed assets in the banking sector surged to a staggering Tk 5.47 lakh crore, or about 32 per cent of the total outstanding loan, by 2023. The amount is a combination of defaulted loans, rescheduled loans, loans written off and loans unclassified by court orders. The amount of defaulted loans, as the report says, reached Tk 1,45,633 crore, of rescheduled loans Tk 2,88,540 crore and loans written off Tk 53,612 crore while about Tk 60,000 crore in loans remained unclassified because of court orders. The amount of distressed assets, excluding loans unclassified by court orders, surged to Tk 4,87,785 crore in 2023, up from Tk 3,77,922 crore in 2022. Rampant loan irregularities and the Bangladesh Bank鈥檚 lax regulations, coupled with irrational concessions, are believed to have led to such an increase in distressed assets. When the amounts in defaulted loans, loans written off and unclassified by court surged substantially, the increase in rescheduled loans was surprisingly high. Rescheduled loans rose from Tk 75,760 crore to Tk 2,88,540 crore in a year, with five banks holding 41 per cent of all rescheduled loans.
The rise in rescheduled loans was driven largely, if not solely, by the central bank鈥檚 rescheduling policies that were criticised by economists as 鈥榣enient鈥� and 鈥榠rrational鈥�. In 2022, the central bank introduced a temporary and too lenient policy on loan rescheduling, allowing banks to reschedule loans by taking an abnormally reduced down payment and granting a relatively longer tenure to the borrower for repayment. The policy allowed loans to be rescheduled with down payments as low as 2.5 per cent of the outstanding loan and allowed borrowers up to 29 years for repayment. The policy, which appears nothing less than an irrational concession, was exploited by many businesses and borrowers, especially those preparing for the 2024 national election, as defaulters are barred from participating in the national elections. The distressed assets are feared to have surged further in the first half of 2024, with the defaulted loan having reached an all-time high of Tk 2,11,391 crore in June 2024. It is assuring that the interim government has since its installation on August 8 stressed the need for discipline in the banking sector, which witnessed a drastic fall of democratic governance and a rise in scams and irregularities in the last 15 years. The challenges, however, appear high and difficult.
A lack of democratic governance and political influence were reasons for the worrying performance of the banking sector and an abnormal increase in distressed assets. The government and the central bank should, therefore, prioritise transparency, accountability and sound management practices in the banking sector. The authorities should also ensure that no irrational concessions are made to borrowers, loans are sanctioned judiciously and loan defaulters, errant banks and officials are brought to justice.
