Non-performing loans (NPL) in Bangladesh rose to Tk 1,56,039 crore at the end of June this year, which was a staggering 10.11 per cent of the banking sector’s outstanding loans of Tk 15,42,655 crore.
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 reached Tk 131,621 crore during the January-March quarter of 2023, so NPLs in the following quarter rose by Tk 24,418 crore.
It is rising despite the International Monetary Fund (IMF) recommendation to reduce default loans in the banking sector.
Speaking to The Business Post, Policy Research Institute (PRI) Executive Director Ahsan H Mansur said, “NPLs increased because the central bank tightened many rules and regulations as per the IMF prescription.
“The overall condition of the banking sector is not well. The Bangladesh Bank should work diligently to ensure good governance in the banking sector, otherwise the ripple effect will seriously jeopardise our economy.”
It should be noted that as per international standards, a country’s default loan ratio should not exceed 3 per cent. But in Bangladesh the figure is over 10 per cent, which puts the country only behind Sri Lanka in the South Asia region.
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However, from the beginning of 2023, the decision was withdrawn, and the default loans soared again.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.
