Bangladesh – when compared to the neighbouring nations – has the second highest ratio of classified loans, falling only behind crisis-hit Sri Lanka. But when compared in terms of bad loans ratio, Bangladesh has exceeded everyone in the region.
In every Tk 100 classified loan, nearly Tk 88 falls under the bad loans category, show an analysis of central bank data. It should be noted that bad loans are nearly impossible to recover.
Bad loans occupy only 4 per cent of the neighbouring India’s classified loans. In Nepal, the amount is around 4.5 per cent.
In comparison, the amount of classified loans in Bangladesh stood at Tk 1,55,398 crore at the end of September 2023, and of the figure, bad loans occupied Tk 1,36,317 crore – which is 87.72 per cent of the outstanding classified loans.
The amount of classified loans in top ten banks stood at Tk 98,201 crore during the period, and Tk 90,027 crore or 83 per cent of the amount are bad loans, show Bangladesh Bank data.
Commenting on the issue, Director (Training) at Bangladesh Institute of Bank Management (BIBM) Shah Md Ahsan Habib said, “Sometimes the ratio of classified loans does not convey the actual situation.
“If bad loans occupy the majority of classified loans, this could indicate that such loans may not be recoverable at all.”
Too many bad loans cause the banks' provisioning to go up, which in turn puts pressure on profits and capital. The amount of bad loans in Bangladesh is high because of the willful defaulters, he added.
Former chairman of Association of Bankers, Bangladesh (ABB) Anis A Khan said, “The amount of bad loans in the country is going up due to the economic headwinds triggered by the Covid pandemic, and Russia-Ukraine war.
“As our economy has taken a hit, rescheduling or restructuring has become ineffective in bringing down bad loans.”
The former banker added, “It is unfair to compare Bangladesh with India, because the neighbouring country’s outstanding loans are multiple times higher than that of Bangladesh. India however has good credit control, so the situation there is comparatively better.
“One of the reasons bad loans are high in Bangladesh is the country having more banks than it really needs. So, junior bankers are taking on senior positions despite not having the necessary experience.”
Ahsan Habib said, “In Bangladesh, the bank-customer relationship has turned into banker-customer relationship. This is why no bankers are able to pressure customers into repaying the outstanding loans.”
What’s the solution?
Experts and bankers say there is no alternative to legal pressure, social pressure, and bank pressure for ensuring repayments of classified loans, especially bad loans. Otherwise, the rising trend of classified or bad loans will not slow down, and recovery will be very difficult.
Ahsan Habib said, “We can use Nepal as a positive example. The country socially boycotts willful loan defaulters. I also laud the recent additions to the Bank Company Act.”
Of Nepal’s outstanding loan amount, classified loans occupy only 3 per cent, whereas the figure is 10 per cent in Bangladesh.
Recommending a reduction in the number of banks, Anis A Khan said, “Mergers and acquisitions can help with this issue. There is no reason for the country to keep 61 banks. An asset recovery company can also be formed to help collect classified loans.
“Besides, efforts should be made to create good bankers and creditors.”
Bad loans in top 10 banks
Bad loans stood at 87.72 per cent of the classified loans in the country’s banking sector at the end of September this year. The classified loans stood at Tk 1,55,398 crore during the same period.
Janata Bank had the highest amount of bad loans at Tk 16,624 crore at the end of September this year. Janata’s bad loans stood at Tk 16,464 crore in the September quarter.
This figure was Tk 15,073 crore for Agrani Bank, Tk 13,498 crore for Sonali Bank, Tk 12,453 crore for National Bank, Tk 8,073 crore for Basic banks, Tk 7,918 crore for Rupali banks, Tk 5,579 crore for AB Bank, Tk 4,337 crore for Islami Bank, Tk 3,630 crore for Padma Banks, Tk 2,842 crore for Bangladesh Krishi Bank during the same period.
Speaking to The Business Post, BRAC Bank Managing Director said, “Ninety-five per cent of the defaulted loans in the banking sector got approved by the boards of banks. Those who took out these loans are influential people. Such irregularities are escalating in the banking sector.
“After providing loans, banks have to take many measures. But banks cannot take proper steps against influential people who take loans. Banks have to make a proper plan on how to recover these default loans from them.”
