The banking sector witnessed a rise in defaulted loans, reaching Tk 6.44 lakh crore by the end of September, making up nearly 36 percent of total disbursed loans. This indicates ongoing fragility in the country’s financial industry. Data from the Bangladesh Bank revealed that out of the total disbursed loans amounting to Tk 18.03 lakh crore at the end of the third quarter, Tk 6.44 lakh crore were classified as defaulted, accounting for 35.73 percent of all loans disbursed – the highest bad loan ratio since 2000.
Comparatively, a year prior, the bad loan ratio stood at 16.93 percent of the total outstanding loans. Following the change in government last year, major borrowers like S Alam, Beximco, AnonTex, Orion, Abdul Monem, and Sikder Group defaulted significantly, leading to a substantial surge in bad loans. The defaulted loans rose from Tk 2.82 lakh crore in September last year to Tk 6.44 lakh crore this year, marking a notable increase of Tk 3.61 lakh crore in just a year.
The sudden rise in bad loans was attributed to many business owners leaving the country and businesses shutting down after August 5 last year, creating an environment of uncertainty that impacted trade and commerce. The banking sector is now facing a notable shortfall in provisioning amounting to Tk 3.44 lakh crore until September.
Syed Mahbubur Rahman, the Managing Director and CEO of Mutual Trust Bank, expressed concerns over the situation, emphasizing that the high volume of defaulted loans would lead to a decline in banks’ profitability and a reduction in lending funds. However, there is optimism that defaulted loans may decrease in December as the central bank has implemented supportive policies and many loans are being rescheduled. Rahman stressed the importance of strengthening loan recovery processes and expediting legal procedures despite the challenges posed by the upcoming election.
Former director general of the Bangladesh Institute of Bank Management, Toufic Ahmad Choudhury, highlighted the significant impact of the rising defaulted loans, as it affects banks’ earnings and capital base due to increased provisions. He emphasized the need for exemplary punishment for loan defaulters to address the situation. Choudhury also mentioned that the higher loan classification figure partly reflects the alignment with international standards by the central bank.
The article noted that in 1999, the banking sector recorded a peak bad loan ratio of 41.1 percent, the highest on record. Subsequently, the ratio started to decline and reached 6.1 percent in 2011.