The banking sector in Bangladesh is grappling with an escalating crisis as non-performing loans (NPLs) have surged to a staggering 3.45 lakh crore taka. The alarming rise in bad debts comes as a consequence of widespread financial mismanagement, including the plundering of bank funds and the illicit transfer of money during the reign of the ousted Awami League government.
Non-performing loans are reaching sky-high levels, with mounting reports of bad debt being written off as the consequence of politically linked figures misusing financial resources. These loans have been labeled as “bad debts” as the borrowers fail to repay, without sufficient collateral, they cannot be recovered. Consequently, this issue is causing significant disruptions in the financial landscape.
As of December 2023, the total non-performing loans in Bangladesh’s banking sector had reached 3,45,765 crore Taka, which accounts for 20.20% of the total distributed loans. Over the past year alone, the NPLs have increased by more than 2 lakh crore Taka, and in just three months, the figure has grown by an additional 61 thousand crore Taka. However, experts caution that the actual figures may be higher than reported, estimating that the real non-performing loans could exceed 7 lakh crore Taka.
Dr. Ahsan H. Mansur, Governor of Bangladesh Bank, emphasized that the rise in NPLs stems from the mismanagement and corruption that took place during the tenure of the ousted government. He further asserted that the data on NPLs is incomplete, with more information about the scale of bad loans coming to light as investigations into past financial irregularities continue.
The vast majority of the loans that are now turning into bad debts were distributed during the former government’s reign, they primarily involved large-scale political figures and business tycoons who were able to acquire loans through preferential treatment. Although many of these borrowers had a history of defaulting on loans, their political influence allowed them to hide the true extent of their non-payment.
Dr. Moinul Islam, a renowned economist and former president of the Bangladesh Economic Association, stated that the actual non-performing loans could be much higher, estimating a sum far greater than the reported 3.45 lakh crore Taka. He pointed out that loans written off, loans under litigation, rescheduled loans are not accounted for in the official statistics, which means that the true extent of the problem is being significantly underestimated.
The situation is further exacerbated by the fact that a large portion of the loans distributed during the Awami League government’s rule were either misappropriated or laundered abroad. Without sufficient collateral or the ability to recover these debts, they are now being classified as non-performing loans, further exacerbating the crisis.
A report from Bangladesh Bank revealed that the rate of non-performing loans at state-owned banks has increased slightly, with the current rate at 42.83% compared to the previous quarter’s 40.35%. Similarly, the rate of bad loans at private commercial banks has risen to 15.60%, a significant increase from the earlier 11.88%.
This growth in non-performing loans is a reflection of the systemic corruption and malpractice that has plagued the banking sector, especially in the years following the establishment of the Awami League government in 2009. At that time, the total amount of non-performing loans stood at only 22,481 crore Taka, but over the last 15 years, this figure has increased by over 3 lakh crore Taka.
Top economists have long raised concerns about the way in which the previous government facilitated the massive plundering of funds from state-owned banks, much of which was subsequently laundered overseas. With the fall of the Awami League government, the full scale of this financial mismanagement is slowly coming to light.
One of the biggest revelations has come from banks such as Islami Bank, where the amount of non-performing loans has soared. Other private commercial banks, such as First Security Islami Bank, Global Islami Bank, Union Bank, Social Islami Bank, have also reported significant increases in bad loans. Furthermore, large conglomerates with political ties, including Beximco Group, Bashundhara Group, Nasa Group, Orion Group, and others, have been identified as the primary defaulters.
Dr. Ahsan H. Mansur, in a press conference at Bangladesh Bank, confirmed that the rise in non-performing loans is a reality that cannot be ignored. He stated that while the NPLs have not yet reached their highest level, it is inevitable that they will continue to rise in the coming months.
“Non-performing loans were previously hidden for various reasons, and now the reality is starting to surface,” Dr. Mansur said. He assured the public that despite the growing issue of bad loans, depositors’ money in banks would remain safe. He mentioned that if necessary, weak banks will be merged with stronger institutions to ensure financial stability.
However, former Managing Director of Bank Asia, Arfan Ali, warned that the continuous rise in non-performing loans would have a negative impact on Bangladesh’s international trade rating. This, in turn, would increase the cost of foreign trade and reduce foreign investments in the country. He added that these loans have been problematic for a long time, but only now are they being officially recorded as non-performing due to changing circumstances.
As investigations into past financial mismanagement continue, the true scale of the banking sector’s bad debt crisis is likely to emerge.
LND/SH
