The banking sector witnessed a staggering increase in the non-performing loans by Tk190,000 crore since 2009, when the Awami League-led government assumed power, amid lenient rules and undue facilities given to large borrowers, and lack of disciplinary measures against defaulters.
According to the Bangladesh Bank data released on Wednesday, non-performing loans surged to Tk211,391 crore in June from only Tk22,240 crore in June 2009.
The amount of non-performing loans was Tk182,295 crore at the end of March, Tk145,633 crore in December 2023, and Tk120,656 crore in December 2022, displaying a significant surge in the past two and a half years.
Criticism has been directed at the Bangladesh Bank for failure to control default loans and for not fulfilling its regulatory responsibilities in addressing the sector’s widespread irregularities.
As of June 2024, the total loan disbursed was Tk1,683,396 crore, with 12.56% classified as non-performing.
In December 2023, NPLs accounted for 9% of the total loans.
By the end of June, the total amount of defaulted loans in private commercial banks had risen to Tk99,921 crore from Tk70,981 crore in December.
In June, the volume of such bad loans in state-owned commercial banks jumped to Tk102,483 crore from Tk65,781 crore in December.
Defaulted loans in foreign commercial banks and specialized banks soared to Tk3,229 crore and Tk5,756 crore, respectively, by June.
In 2020 and 2021, borrowers benefited from relaxed repayment terms, including a one-year moratorium, due to the Covid pandemic.
Experts attribute the increase in defaulted loans to the relaxation of repayment terms during the Covid pandemic, coupled with the country’s deteriorating economic situation.
Financial analysts suggest that if written-off loans, rescheduled loans, and loans remaining unrecovered due to court proceedings are considered, the volume of default loans will be much higher.
The significant amount of defaulted loans has affected banks’ liquidity and profitability, as most of their income is derived from interest on performing loans.
In this situation, the central bank on July 8, introduced an exit policy for loan defaulters after various efforts to curb the rising tide of bad loans in the country’s banking sector failed.
The central bank outlined that if recovery prospects are deemed minimal, or in case of closure of project or business due to unavoidable circumstances or in case of closure of project or business by the borrower, the exit facility could be granted for recovery of such classified loans.