Balancing financial prudence in NPL policy review a must for business viability
The recent introduction of stringent regulations by Bangladesh Bank regarding non-performing loans (NPLs) has raised alarm bells among business leaders, particularly in the garment sector, which is the backbone of the country’s economy.
Our newspaper on Tuesday reported that the apex bodies representing garment manufacturers, BGMEA and BKMEA, have voiced serious concerns that these new rules could stifle private sector growth, jeopardising investment, employment, and overall macroeconomic stability.
The Bangladesh Bank’s ambitious roadmap aims to reduce default loans to below 8 per cent by June 2026, with state-owned banks targeted at 10 per cent and private banks at 5 per cent.
While the intention behind these measures is commendable — aiming to enhance the health of the banking sector — the execution appears to lack a nuanced understanding of the challenges faced by various industries.
BKMEA President aptly described the measures as “unrealistic and anti-business,” warning that without consideration for sector-specific repayment capacities, many businesses could find themselves in default.
The new classification timelines for overdue loans are particularly concerning.
By tightening the criteria for classifying loans as substandard, doubtful, or bad, the Bangladesh Bank risks exacerbating the financial strain on businesses already grappling with issues such as financial instability and gas shortages.
The previous leniency in classification allowed businesses some breathing room; the new rules, however, could lead to a rapid escalation of defaults, particularly in the ready-made garment sector, which is already under pressure.
Moreover, the revised policies, which include a faster loan write-off process, may not provide the relief intended.
While reducing the timeline from three years to two could theoretically lower default loans, it does not address the root causes of financial distress faced by businesses.
A one-size-fits-all approach fails to recognise the diverse landscape of industries and their unique challenges.
We would like to say that a balance must be struck between adhering to international standards, as prescribed by the IMF and accommodating the realities of Bangladesh’s business environment.
In this case, sector-specific studies are essential to fully understand the implications of these regulations.
While the goal of reducing NPLs is vital for the health of the banking sector, it should not come at the expense of the very businesses that drive the economy.
A collaborative approach, involving dialogue between the government and industry leaders, is essential to create a regulatory framework that fosters growth while ensuring financial stability.
Only then can we hope to build a resilient economy capable of weathering future challenges.