White Paper: Non-performing loans in the banking sector reach 675,000C

The volume of bad loans in the banking sector has been rising rapidly in recent years, as highlighted by data from Bangladesh Bank (BB) in the recently released White Paper.

In June 2021, the default loan rate was 7.9%, but by the end of June this year, it had surpassed 12%. Of these defaulted loans, approximately 88% are categorized as bad quality, according to the report.

The issue has been described as the "black hole" of the banking sector, with its true depth being three times greater than what is visibly apparent.

Bangladesh Bank’s statement at the end of June revealed that defaulted loans amounted to Tk211,391 crore, a figure that surged to over Tk288,000 crore by September.

Both domestic economists and international organizations have raised concerns about the accuracy of the defaulted loan data presented by the central bank.

Following an independent assessment of banks’ assets by a committee of domestic and international chartered accountants, experts predict that the defaulted loan ratio could rise to 25%.

Bangladesh Bank Governor Dr. Ahsan H Mansur stated that the current default loan ratio of 12.5% could double after the asset evaluation. He emphasized that the reality, which had been previously hidden, must be acknowledged, as concealing bad loan information will not solve the problem.

The White Paper, released on December 2, reveals that Tk272,856 crore of the bad debt was re-disbursed, Tk75,389 crore was written off, Tk39,209 crore was in special mention accounts, and Tk76,185 crore was tied up in High Court cases. These loans have also become defaulted.

Altogether, the actual amount of defaulted loans totals Tk675,000 crore, a staggering figure equivalent to the cost of constructing 13 metro rail projects or 22 Padma bridges.

Banks are required to maintain a 100% provision against bad loans. However, as of June, they had only kept Tk89,355 crore in provisions, falling far short of the required Tk176,889 crore.

Approximately 55% of the defaulted loans come from the manufacturing sector.

The crisis in the banking sector has been linked to the actions of senior central bank officials and powerful external actors, particularly between 2015 and 2024.

The White Paper notes that amendments to the Bank Company Act, influenced by economic and political factors, have contributed to the sector's decline. In 2023, the term for entrepreneur directors was extended to 12 years from nine years, as per a 2018 amendment. The number of directors from a single family was reduced to three in 2023, after being raised to four earlier. Additionally, a crucial provision was removed: previously, if one company in a group defaulted, loans from other companies in the group would also be considered defaulted. The removal of this provision, the report states, has further weakened the banking sector.