News that loans at the 35 non-banking financial institutions (NBFIs) in the country was Tk21,658 crore at the end of September last year, up 9% from June the same year and 25% a year ago is a bad omen - that the scourge of bad loans in the country is only getting worse.
This surge in NBFI loans turning bad is certainly a growing concern and is yet another issue challenging the economic stability of Bangladesh. The adverse effects of bad loans on the financial sector are well known by now, and they ripple through the entire economy.
While weak risk assessment, inadequate regulatory frameworks, and economic downturns are all reasons for bad loans, it starts with the failure to hold institutions accountable while simultaneously allowing a gross culture of impunity where powerful entities, over and over again, are able to get away with accumulating these bad loans.
Thorough assessments of borrowers' creditworthiness and stringent monitoring mechanisms are just the bare essentials to prevent the proliferation of bad loans, but above all else, what is required is the will to do something about it and for the culture of impunity and disregard to transparency to be challenged.
Simultaneously, if this is a growing problem at NBFIs, then it is also crucial for the government and regulatory authorities to engage in a comprehensive review of NBFI operations, addressing systemic vulnerabilities, and fostering an environment conducive to responsible financial practices.
In the pursuit of economic prosperity, Bangladesh must confront the challenges posed by not just bad NBFI loans but the issue of bad loans across all financial institutions head-on. Only a concerted effort can pave the way for a more robust and sustainable financial ecosystem in Bangladesh.
