In Bangladesh, the majority of loans within the manufacturing industry are not being repaid as scheduled. The overall proportion of non-performing loans (NPLs) in the industrial sector has risen to 55.10%, equivalent to Tk66,483 crore.
The gross non-performing loan (NPL) ratio within this sector was 0.97 percentage points higher than the overall gross NPL ratio of the industry, signifying that the 9.13% gross NPL ratio within the manufacturing sector surpasses the industry's average of 8.16%.
Nevertheless, the banking sector in Bangladesh allocated a significant portion of loans to the manufacturing sector, amounting to 49.27%. As stated in the Bangladesh Bank Financial Stability Report 2022 (Issue-13), since loans to the manufacturing sector comprised nearly half of the banking sector's loans and advances, this sector appeared to present a concentrated risk for the banking industry.
The report also pointed out that the high gross NPL ratio (22.43% in 2022) in the ship-building and ship-breaking sub-sector remained another major concern, which was 18.75% in the previous year.
The gross NPL amount increased by Tk17,383 crore following an increase of total outstanding loans and advances by Tk175,992 crore in the banking sector at the end of December 2022.
Report analysis also revealed that the written-off loan amount surged by nearly 8% to Tk65,321 crore at the end of 2022, which was Tk60,498 crore at the end of 2021.
The cumulative written-off loans roughly accounted for 2.97% of the banking sector's on-balance-sheet assets in December 2022, the BB's financial stability report noted.
However, of the total written-off loans, the banks were able to recover Tk20,828 crore by the end of 2022, and thus the net outstanding balance of written-off loans stood at Tk44,493 crore.
The net outstanding balance of written-off loans in the state-owned commercial banks (SoCBs), private commercial banks (PCBs), foreign commercial banks and specialized banks was Tk16,449 crore, Tk26,568 crore, Tk1,125 crore and Tk351 crore respectively.
BB's Financial Stability Report 2022 further states that the overall asset quality of the banking sector has experienced a slight deterioration.
The report notes that the rise in gross NPLs, driven primarily by increased NPL ratios within state-owned commercial and specialized banks, has contributed to this marginal decline in asset quality.
The report says in 2022, the notable and elevated ratio of Bad/Loss loans to gross NPL continued its trend with a slight uptick compared to the previous year.
At the end of December 2022, the proportion of bad and loss (B/L) loans within the gross NPL category climbed to 88.67%, a marginal increase from 88.17% in 2021. This elevated B/L loan ratio underscores that a significant portion of the NPLs has remained nonperforming over an extended duration.
According to the central bank report, the cumulative bad and loss loan volume within the banking sector reached nearly Tk1.07 lakh crore by the end of December 2022, marking an increase from Tk91,058 crore a year ago.
Also, the proportion of bad and loss loans has been demonstrating an increasing trend since 2012 and remained above 80% of the gross NPL over the years, which may imply a slow recovery from bad loans, according to the report.
"Higher B/L loans may adversely affect the profitability and the capital base of the banks since 100% provision is required to be maintained against such loans," says the Bangladesh Bank report.
In 2022, all the banks except four private banks, three state-owned banks, and one state-owned specialized bank maintained loan-loss provisions as per the regulatory requirement of the Bangladesh Bank.
