Businesses closing down, non-performing loans increasing

Businesses are closing down one after another, while non-performing loans (NPLs) continue to rise, according to government reports. Bangladesh’s business sector has been facing stagnation for several months, a slowdown that began well before the interim government assumed office and has since worsened.

Central bank data reveals a decline in loan repayments, with risky assets in the banking sector increasing by over Tk1,00,000 crore in just a year. By the end of 2023, Bangladesh Bank's Financial Stability Report showed that distressed loans, including defaulted, restructured, and written-off loans, amounted to Tk4,75,000 crore. This figure has likely risen by at least Tk1,00,000 crore due to significant withdrawals during the final phase of the previous government.

The report also highlights that global factors, including the Russia-Ukraine war, the Israel-Palestine conflict, and internal challenges, may further undermine borrowers' ability to repay, worsening asset quality in the banking sector. 

Bankers attribute much of the sector's problems to extensive plundering during the last years of the Awami League regime. Major loans, many allegedly siphoned abroad, were taken by influential groups under lenient policies, leading to defaults now. Bangladesh Bank Governor Dr. Ahsan H. Mansur noted that four to five families alone borrowed around Tk2,00,000 crore from banks.

The business climate has deteriorated, with 128 companies closing between May and September, 83 of them in the first three months of the fiscal year. Over 200 garment factories also halted production due to labor unrest, costing the sector an estimated $400 million in September and October, according to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

BGMEA President Khandoker Rafiqul Islam expressed concern over Bangladesh losing ground to competitors in garment exports. While global imports increased, Bangladesh's share decreased, trailing behind nations like China, Vietnam, and India. Recent disruptions in industrial areas have further exacerbated losses, particularly in September, when exports and production were significantly impacted.

Analysts cite inflation, high production costs, labor unrest, and the global economic downturn as challenges for entrepreneurs, while political changes have limited opportunities for some businesses. By December 2023, nearly 32% of the total loans—around Tk15,00,000 crore—were classified as distressed, a 26% increase from the previous year.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, noted that the ongoing rise in non-performing loans, currently at Tk2,00,000 crore, could escalate to Tk3,00,000 to Tk3,50,000 crore if loans from major groups were included. The situation is further strained by industrial entrepreneurs, who hold the largest share of rescheduled loans. In 2023, a record Tk91,221 crore worth of loans were rescheduled.

Dr. Zahid Hussain, a former lead economist at the World Bank, pointed out that if loans frozen by court orders were considered, the NPL figures would be even higher, underscoring the extent of embezzlement and political influence in the banking system.

Meanwhile, several banks and non-bank financial institutions are under pressure due to poor loan scrutiny, struggling to repay depositors on time, and witnessing a rise in non-performing loans across the board.