IMF: Default loans creating fatal risk in banking sector

Bangladesh’s huge amount of default loans is creating a fatal risk in the country’s banking sector, the visiting International Monetary Fund (IMF) team has told officials concerned.

During a meeting with the Financial Institutions Division (FID) and the Bangladesh Bank on Wednesday, the IMF staff con-sultation team also wanted to know the authorities’ efforts to recover the defaulted loans.

FID Secretary Sheikh Mohammad Salim Ullah and three deputy governors of the Bangladesh Bank represented their respec-tive organisations at the meeting.

Sources said Bangladeshi officials told the IMF team that work is underway to hire an asset management company to over-see the banks’ defaulted loans.

The IMF, in its reform conditions under the $4.7 billion loan programme for Bangladesh, recommended that rescheduled loans be counted as default loans.

Sources said if the rescheduled loans are counted as defaulted loans as per the conditions of the IMF, the amount of de-faulted loans will increase by about Tk 30,000 crore.

In the meeting, the FID presented data that showed the loan default rate in the country’s banks was above 8 per cent in 2022. In 2021, it was 7.93 per cent, up from 7 per cent in 2020.

Noting the increase in default loan rates in 2022, the IMF delegation asked whether the rate can be reduced. In response, FID officials said the rate will be reduced.

However, sources claimed that the FID failed to give a proper answer to a question from the IMF about the state of defaulted loans at the state-owned banks.

The IMF mission visiting Dhaka will review the implementation progress of the market-based exchange rate of the US dollar in Bangladesh, the introduction of the accounting system of actual usable reserves, the risk-based supervision system of banks by next June, the disclosure of information on banks’ defaulted loans every year, counting the rescheduled loans of banks as defaulted loans, announcing the monetary policy twice a year, etc.

Apart from this, the IMF mission has also queried about the recent situation of state-owned banks, their risk management, recapitalisation, bad debt and liquidity situation, foreign exchange shortage, amendments to the Bank Companies Act and Finance Companies Act, and the progress of five legislations, including bankruptcy law.