THIS is unfortunate that the Bangladesh Bank needs to show Tk 1,631.5 billion that is, in fact, defaulted loans, as of June, as regular loans and classify 1,086 borrowers, averagely owing Tk 1.5 billion, from being defaulters because of court orders. A central bank report says that such a high number of borrowers have filed writ petitions with the court to secure protection in 27,302 instances of defaulted loans. Although the law requires banks to classify any loans overdue for six months as defaulted, the banks cannot do so once the borrowers, mostly wilful borrowers, obtain stay orders from the court, which stops the loans from being reported to the Credit Information Bureau with which banks verify the status of the borrowers before extending fresh credit. The law stops defaulters from freshly taking out loans, opening letters of credit for import and export, holding directorship of banks or contesting elections, but the defaulters in question continue to do all this because of the legal shield. The central bank governor in July said that defaulters should be classified as defaulters even if there are stay orders. The governor then urged the central bank, the government and the judiciary to resolve the loophole.
The central bank is reported to have started working on some proposals to amend the Bank Company Act and the Financial Loans Court Act for stringent provisions against legal protection for the defaulters. But nothing tangible has so far happened. The amount of non-performing loans has, meanwhile, doubled in a year, reaching Tk 4,200 billion in the first quarter of 2025, from Tk 1,820 a year ago, as the central bank data show. The figure was Tk 3,450 billion in December 2024, up from Tk 2,110 billion in June, which increased rapidly from Tk 1,450 billion in December 2023. Experts say that the amount of non-performing loans registered a massive increase as the central bank started showing the actual financial condition of banks after the overthrow of the Awami League regime, when politically connected large bank borrowers enjoyed undue privileges and regulatory leniency, in August 2024, noting that many of such borrowers are wilful defaulters who syphoned off funds abroad. Yet, many others continue to access loans after obtaining court orders. The Bangladesh Bank has stopped banks with provision shortfall from declaring dividends as a means of control on banks with a huge amount of non-performing loans. But this is by no means enough.
The central bank has asked other banks to strengthen their legal teams to expedite the disposal of cases that have been pending with the court. But the central bank and the government should also keep watch on and help the banks to expedite the process so that the veiled non-performing loans could be classified as defaulted and action can be taken against the defaulters.
