NPLs hit Tk1.5 lakh cr, 9.9% of outstanding loans

Non-performing loans (NPL) in Bangladesh stood at Tk 1,55,397 crore at the end of July-September period (Q3) this year, occupying 9.93 per cent of the banking sector’s outstanding loans of Tk 1,565,195 crore.

This is a Tk 642 crore decline compared to Q2 (April-June) of the same year, when NPLs had accounted for 10.11 per cent or Tk 1,56,039 crore of the banking sector’s outstanding loans of Tk 15,42,655 crore, Bangladesh Bank sources say.

At the end of Q3, NPLs stood at Tk 65,797 crore in the state-owned commercial banks, which is 21.70 per of the total classified loans in the country. Meanwhile, private commercial banks' NPLs stood at Tk 81,537 crore, which is 7.04 per cent of the banking sector.

Foreign commercial banks recorded Tk 3,286 crore in NPLs during the July-September period, which is 5.07 per cent of the banking sector. Specialised banks’ NPLs were Tk 4,777 crore, which is 12.10 per cent of the banking sector at the end of third quarter this year.

NPLs had accounted for 8.16 per cent of the outstanding loans at the end of December 2022, which later increased to 8.8 per cent in March this year, say sources from the Bangladesh Bank.

The country’s default loans had reached Tk 131,621 crore during the January-March quarter of 2023, so NPLs in the following quarter rose by Tk 24,418 crore.

Speaking to The Business Post, Policy Research Institute of Bangladesh (PRI) Executive Director Ahsan H Mansur said, “The central bank gave special preference for loans rescheduled to two big groups.

“As a result, NPLs decreased in September, down from June this year. So it is not good information for the banking sector. The regulator is trying to show the downturn in the banking sector. But ultimately, the banking sector is vulnerable right now. The reason behind this move is the upcoming national polls.”

“For the banking sector, write offs are better than rescheduled loans.”

Distinguished Fellow of Center for Policy Dialogue (CPD) Prof Mustafizur Rahman said, “The banking sector is not well. The central bank gave some groups the chance to reschedule, which is ultimately not beneficial for the economy. The banks will have to collect the NPLs.

“The regulator took many initiatives that are not visible. The regulator should be firm about defaulters.”

Back in 2020, the Bangladesh Bank gave special concessions on loan repayments to deal with the adverse impact of Covid-19 pandemic.

At that time, the regulator had issued instructions that a customer cannot be termed as a defaulter even if he does not repay the loan. Later, in 2021, the central bank instructed that a customer will not default if they pay only 15 per cent of the due loan amount.

In June 2022, after the pandemic restrictions eased, the central bank announced that if a borrower pays up to 75 per cent of the instalments from October to December that year, they will not be declared a defaulter.

However, due to the increase in production costs triggered by the Russia-Ukraine war, the regulator reduced that rate to 50 per cent. Following this decision, the default loans decreased slightly in the December quarter.

However, from the beginning of 2023, the decision was withdrawn, and the default loans soared again.

Industry insiders say banks are now rescheduling their own loans following approval from their respective boards. This move is allowing banks the opportunity to reduce default loans, albeit only on paper.

They add that the country’s default loan data does not portray the real picture. The IMF had previously stated that if Bangladesh brings into consideration the loans stuck in rescheduling, written off and money loan court, the amount of default loans will nearly double.

Many banks are currently suffering from a liquidity crisis, as they are unable to collect default loans. Excess liquidity in the banking sector fell by 18.26 per cent to Tk 1,66,272 crore in June this year, down from Tk 2,03,423 crore compared year-on-year, show central bank data.