The Hasina regime took power in 2009 after a participatory election led by the one eleven army-backed government. Defaulted loans in the domestic banking sector stood at Tk 22,481 crore that year.
During the regime that spanned over 15 long years, the most discussed issue in this particular industry had been defaulted loans, corruption, lack of good governance, loss of central bank independence, and the hostile takeover of several banks perpetrated by S Alam group.
Taking advantage of the chaos, most conglomerates had taken loans from banks, most of which gradually turned to defaulted loans because many of them laundered those funds, or utilised in other ventures violating banking rules.
This chain of events – taking place during the Hasina regime – pushed the amount of defaulted loans to a staggering Tk 2,11,391 crore until June 2024. Bangladesh Bank spokesperson and Executive Director Md Mezbaul Haque provided this information to the media on Tuesday.
An analysis of the latest central bank data further shows that during the Hasina regime defaulted loans jumped by Tk 1,88,910 crore, a nearly 9.5 times increase.
At the end of March this year, the amount of non-performing loans (NPLs) stood at Tk 1,82,295 crore, while defaulted loans rose by Tk 29,096 crore in just a quarter [April-June 2024].
Speaking to The Business Post, World Bank Dhaka Office former lead economist Zahid Hussain said, “This is the minimum amount of defaulted loans. If we take into account the rescheduled, restructured, written-off loans, and money stuck in the legal process, the figure will be a lot more.
“Apart from this, the current calculation of defaulted loans does not fully comply with international standards. I actually have no clue where the defaulted loan figures will go if we consider all the angles.”
What’s the damage?
Regulator data released Tuesday showed that at the end of June this year, amount of total loans disbursed by the banks stood at Tk 16,83,396 crore, while defaulted loans increased to Tk 2,11,391 crore, which was 12.56 per cent of total lending amount.
Most of the defaulted loans are in state-owned banks, and such banks held Tk 1,02,483 crore NPLs until June this year, which is 32.77 per cent of their total disbursement.
Meanwhile the private banks are holding only 7.94 per cent classified loans of their total lending amount. Such banks’ NPLs stood at Tk 99,921 crore in the first half of 2024.
Defaulted loans in foreign banks stood at Tk 3,229 crore during that time frame, which was 4.74 per cent of their lending amount. The specialised banks held Tk 5,756 crore NPLs, which is 13.11 per cent of their total disburse until June this year.
Recommending that the banks should not under any circumstances allow NPLs to go further up, Zahid Hussain added, “Initiatives too should be taken to increase debt recovery. Recovery can be done in two ways, one is through the court, but it is a long process.
“Another is through an alternative resolution process. The central bank or government will decide how to run the process.”
How did the irregularities occur in banks?
During the Hasina regime, using political and administrative influence led to massive looting in the banking sector. In this regard, the Bangladesh Bank was largely a silent spectator or could not play a role even if it wanted to.
Local think tank Center for Policy Dialogue (CPD) recently informed at the press conference that between 2008 and 2023, there were 24 major loan scams in the banking sector, which led to the embezzlement of Tk 92,261 crore.
On the other hand, defaulted loans rose to Tk 1,82,295 crore until March 2024, which was only Tk 22,481 crore in 2009.
CPD stated that the banking sector is now facing many challenges arising from irregular practices, scams, corruption and theft. Some of the third and fourth generation banks – licenced under political consideration during the Awami League government – are now dying.
It pointed out that such banks have been kept alive by people's tax money, and should be allowed to die. Besides, there are some banks whose operations are bad, and they too will die if there is even a little shock.
According to the think tank, Chattogram based S Alam Group owns at least seven banks. The group alone took out Tk 30,000 crore from Islami Bank. Janata Bank too hand disbursed Tk 10,000 crore to Anontex Group – violating the single borrower loan limit.
Steps by the interim govt
After the Hasina regime fell, an interim government led by Chief Adviser Mohammad Yunus was formed. Eminent economist Ahsan H Mansur was appointed as the governor of Bangladesh Bank.
Mansur has already started working to free the banks – controlled by the S Alam group – from irregularities. The boards of such banks have been dissolved and new boards have been formed in their stead.
The board of directors of state-owned banks has also been dissolved, and new boards have been formed. Though the amount of defaulted loans is the highest in such banks, bankers feel optimistic that the new boards may be able to reduce the volume of bad loans.
In terms of private banks, some banks have more defaulted loans than others. The board of Islami Bank – the country’s largest private bank with a huge amount of defaulted loans – has been restructured.
The board of National Bank – a first generation private bank – also has been formed.
Since there is no political influence at the moment, the sector’s stakeholders are expecting that interim government initiatives will make a positive impact, and the overall scenario will improve in the coming days.
