Inflation has not reduced as assured. Businesses are reportedly shutting down one after another while the volume of non-performing loans in the banking sector is increasing, fuel price is still high, the situation of law and order is not under control, and many are talking about uncertainty with the political transition.
People are becoming confused about the possible future and more importantly economic recovery. The billion-dollar question now is “Is the economy heading towards a U shape recovery path, not a V?”
Bangladesh’s business sector has been experiencing a form of stagnation for several months. This slowdown, which began before the interim government took office, has now extended further.
Central bank data shows that loan repayments to banks are declining. In the span of just one year, the amount of impaired assets in the banking sector has surged by over Tk1,00,000 crore. Bangladesh Bank's financial stability report indicates that by the end of 2023, the amount of distressed loans in banks was Tk4,75,000cr. As of June, this year, the amount is estimated to have increased by at least another Tk1,00,000cr due to substantial withdrawals from banks during the last days of the previous regime. This included defaulted, restructured, and written-off loans.
The same report also states that at the end of 2022, the banking sector's distressed assets amounted to Tk3,78,000cr, meaning that the volume of distressed assets grew by Tk1,09,000cr within a year. It mentioned that ongoing global issues such as the Russia-Ukraine war, the Israel-Palestine conflict, and other internal and external challenges would reduce the ability of borrowers to repay their loans, which further worsened the banks’ asset quality.
Bangladesh Bank restructured loans to protect them from being classified as defaulted. Under their lenient policies, a significant number of loans were restructured, and are now beginning to default once again. New central bank Governor mentioned that four to five families had borrowed around Tk2,00,000cr from banks.
According to the Office of the Registrar of Joint Stock Companies and Firms (RJSC), a total of 128 companies closed down between May and September, with 83 shutting down completely in the first 3 months of the current fiscal year.
Many business promoters, who benefitted from the previous government have already left the country, causing the overall business environment to stagnate. Additionally, over 200 garment factories halted production early last September due to labour unrest.
According to BGMEA, the unrest in areas like Savar, Ashulia, and Gazipur caused an estimated loss of nearly $400 million in September and October.
Analysts also confirmed that some orders are being shifted to competitor countries due to the uncanny situation. Besides, globally, the import of our garments has decreased. From January to August this year, US garment imports grew by 1.5%, while imports from Bangladesh decreased by 3.8%. In contrast, China's exports increased by 3.6%, Vietnam's by 5.2%, India's by 7.6%, and Cambodia's by 7.7%.
Many business promoters, who benefitted from the previous government have already left the country, causing the overall business environment to stagnate
In Europe, total imports increased by 3.3% from January to July, with Bangladesh's share growing by only 2.8%. In comparison, imports from China increased by 6.4%, India by 5.18%, Cambodia by 18.35%, Vietnam by 12.61%, and Pakistan by 14.41%. For the July-September period this year, Bangladesh's export growth was 5.34%, while Vietnam's growth reached 15.57% and India's 13.45%. This indicates that we have significantly lagged behind our competitors in export growth during the third quarter of this year.
According to analysts, political changes have created limited business opportunities for some companies. On top of inflationary pressure, increased production costs, reduced sales, high interest rates, labour unrest, transportation and technical issues, a shortage of raw materials due to the dollar crisis, the impact of global conflicts, and adverse effects of unexpected floods also put heavyweight challenges for entrepreneurs.
Currently, the banking sector's total loans stand at approximately Tk16,00,000cr, with less than 12% of those loans considered non-performing. However, if large loans with challenges on ultimate recovery are taken into account, the non-performing loan rate could rise to more than 20%.
Data from the central bank indicates that industrial entrepreneurs have the highest percentage of loan rescheduling. At the end of 2023, 26.4% of rescheduled loans were in the industrial sector, followed by the textile and readymade garment sector at 20.9%.
Banks rescheduled non-performing loans worth Tk 91,221cr last year, the highest in a single year to date. The total outstanding rescheduled loans stood at Tk2,88,540cr, representing 18.75% of the total disbursed loans. If rescheduled loans are added to non-performing and written-off loans, the amount of bad loans will rise to Tk5,00,000cr. Reality could be even worse if loans disbursed to bank directors are included. Many banks are also under stress for having disbursed loans without proper scrutiny, and some are struggling to repay depositors on time.
The bilateral and multilateral development partners are yet to contribute in line with the expectations they have initially set as well as our requirement. In order to get the economy on the right trajectory, rise in internal consumption, as well as a stable exchange rate play a critical role. Due to high inflation and liquidity shortage the banks will have problems on both fronts.
With the clouds looming on export receipts, inward remittance not reaching anywhere near the possible pie, question mark on foreign direct investment without clarity, the political transition, in the absence of loud encouragement to the private sector -- analysts are increasingly of the opinion that Bangladesh’s economic recovery may be slower than expected.
Mamun Rashid is the Chairman at Financial Excellence Limited.