The amount of distressed assets in Bangladesh’s banking sector skyrocketed to nearly Tk550,000 crore by the end of 2023, driven by rampant loan irregularities and the Bangladesh Bank’s lax regulations and weak enforcement in the period.
The central bank disclosed this alarming situation in its Financial Stability Report 2023.
The staggering figure is a combination of defaulted loans, rescheduled loans, write-offs and loans unclassified by court orders.
According to the report, the amount of defaulted loans reached Tk145,633 crore, rescheduled loans surged to Tk288,540 crore and write-offs amounted to Tk53,612 crore by the end of 2023.
Additionally, about Tk60,000 crore in loans remained unclassified due to court-issued stay orders.
Excluding loans unclassified by court orders, the amount of distressed assets in the banking sector surged to Tk487,785 crore in 2023, up from Tk377,922 crore in 2022, according to the central bank’s report.
The rise in rescheduled loans, up 35.6% or Tk75,760 crore to Tk288,540 crore at the end of 2023 from the previous year, was fuelled by the Bangladesh Bank’s lenient rescheduling policies.
In 2022, the Bangladesh Bank introduced a temporary and somewhat lenient policy on loan rescheduling allowing banks to reschedule loans by taking reduced down payment and granting a relatively longer tenure to the borrower for repayment, the report observed.
Banks were also allowed to frame their own policy to reschedule loans based on the parameters set by the Bangladesh Bank earlier.
The stated policy might have contributed to the increase in rescheduling of loans in 2023, it said.
The central bank allowed loans to be rescheduled with minimal down payments and extended repayment periods, benefiting primarily large businesses seeking to clear their default status ahead of the January 2024 national election.
This leniency pushed loan rescheduling to Tk91,221 crore in 2023, a 360% jump from 2020’s figure of Tk19,810 crore.
The Bangladesh Bank’s policies had drawn severe criticism as those enabled defaulters, as evidenced by its 2022 circular, repeated rescheduling with down payments as low as 2.5% of the outstanding loan.
Defaulters can now reschedule loans for up to 29 years, a move bankers say was exploited by many businesses, particularly those who were preparing for the national election since defaulters are barred from participating in the national election.
The concentration of rescheduled loans among the top banks is equally troubling.
Five banks, including four private and one state-owned, held 41% of all rescheduled loans, while the top 10 controlled nearly 60%, highlighting the unequal nature of these policies in favour of the largest players.
