The banking sector witnessed a staggering increase in the non-performing loans by Tk 1,90,000 crore in the past 14 years since 2009, when the Awami League-led government assumed power, amid an environment of lenient rules and undue facilities given to large borrowers, and a lack of disciplinary measures against defaulters.
According to the Bangladesh Bank data released on Thursday, non-performing loans surged to Tk 2,11,391 crore in June from only Tk 22,240 crore in June 2009.
The amount of non-performing loans was Tk 1,82,295 crore at the end of March, Tk 1,45,633 crore聽 in December 2023, and Tk 1,20,656 crore in December 2022, displaying a significant surge in the past two and a half years.
Experts expressed deep concerns about the sharp rise in default loans, warning of severe repercussions for both the banking sector and the economy, saying that significant portions of these loans were laundered.
They argued that many of these default loans were obtained by leveraging the borrowers鈥� political, financial and other lobbies.
Criticism has been directed at the Bangladesh Bank for its failure to control default loans and for not fulfilling its regulatory responsibilities in addressing the sector鈥檚 widespread irregularities.
Besides, lending rate cap to 9 per cent and forcefully holding the dollar rate facilitated the errant borrowers to launder cheap money, they added.
As of June 2024, the total loan disbursed was Tk 16,83,396 crore, with 12.56 per cent classified as non-performing.
In December 2023, NPLs accounted for 9 per cent of the total loans.
Masrur Reaz, chairman of think tank Policy Exchange of Bangladesh, told 抖阴精品 that non-performing loans have surged tenfold in just 15 years under the Awami League-led government.
He attributed this to a breakdown in governance and credit discipline, driven by the highest levels of political leadership to benefit oligarchs and cronies.
Reaz noted that the true scale of bad loans could be even higher if accurate data were available.
He explained that corporate governance was severely compromised, and the effectiveness of bank boards was significantly diminished, with hostile takeovers of banks being supported by top political leaders.
There was a consistent failure to adhere to minimum governance standards and credit discipline, both by boards and management, due to political pressure.
Reaz pointed out that the central bank was deprived of its independence, and there was manipulation and modification of credit and other financial data.
These factors collectively contributed to the rise in bad loans with most of them being willfully defaulted.
To address these issues, Reaz suggested that the central bank should be fully independent and that bank boards should be reformed with competent members with ability to implement global standards of governance and management.
He also proposed that shares of banks controlled by errant business groups should be transferred to prominent international investors to enable capital infusion.
Furthermore, Reaz emphasised the need for the central bank to seek global cooperation and international experts to recover stolen and laundered money.
He also recommended that all loans be audited to uncover the full extent of the losses and identify the original beneficiaries, ensuring they are held accountable.
By the end of June, the total amount of defaulted loans in private commercial banks had risen to Tk 99,921 crore from Tk 70,981 crore in December.
In June, the volume of such bad loans in state-owned commercial banks jumped to Tk 1,02,483 crore from Tk 65,781 crore in December.
Defaulted loans in foreign commercial banks and specialised banks soared to Tk 3,229 crore and Tk 5,756 crore, respectively, by June.
In 2020 and 2021, borrowers benefited from relaxed repayment terms, including a one-year moratorium, due to the Covid pandemic.
Experts attribute the increase in defaulted loans to the relaxation of repayment terms during the Covid pandemic, coupled with the country鈥檚 deteriorating economic situation.
Financial analysts suggest that if written-off loans, rescheduled loans, and loans remaining unrecovered due to court proceedings are considered, the volume of default loans will be much higher.
The significant amount of defaulted loans has affected banks鈥� liquidity and profitability, as most of their income is derived from interesting on performing loans.
In this situation, the central bank on July 8, introduced an exit policy for loan defaulters after its various efforts to curb the rising tide of bad loans in the country鈥檚 banking sector failed.
The central bank outlined that if recovery prospects are deemed minimal, or in case of closure of project or business due to unavoidable circumstances or in case of closure of project or business by the borrower, the exit facility could be granted for the purpose of recovery of such classified loans.