It is a shame that, despite our stability and growth, as per a recent World Bank report, Bangladesh's banking sector has the second-highest ratio of non-performing loans (NPL) among the countries in South Asia, with only struggling Sri Lanka being above us. Even more disappointing is the fact that when it comes to non-bank financial institutions (NBFIs), the ratio of NPL is the highest in Bangladesh.
The functionality and health of a nation's financial sector is intricately linked to how it is progressing. However, it is a shame that the persistently high levels of bad and defaulted loans in the country continue to be such a challenge for us.
Bad loans, which as of December 2022 further increased an alarming 16.8% year-on-year to a staggering Tk120,656 crore, is not only hampering the overall investment climate in Bangladesh, which we are in dire need of improving, but in our failure to even reduce the amount of bad loans, the general public is losing trust in financial institutions altogether.
It once again speaks of the culture of impunity that has almost become synonymous, with certain powerful actors continuing to default on their payments over and over again. Moreover, owing to our weakened financial institutions and culture of credit, more borrowers are thus emboldened to default on their payments -- thereby making a bad situation worse with each passing year.
To have any chance of addressing this issue, Bangladesh must prioritize comprehensive reforms. This requires a multi-faceted approach involving stricter regulatory oversight, enhanced risk management practices, and improved governance within financial institutions.
We also need stronger laws to expedite the resolution of bad loans, ensuring timely recovery and minimizing losses for both borrowers and lenders.
Finally, we need transparency and accountability in the lending process, and actively fostering a culture of responsible lending and borrowing, supported by robust credit assessment mechanisms. If we are to build towards becoming a developed nation, bad loans must not only be reduced drastically, but eliminated altogether.
