Banks and NBFIs not far from falling apart

Banks and non-bank financial institutions (NBFIs) of Bangladesh might have been largely immune from the devastating impacts of the Russian-Ukraine war and the coronavirus pandemic, but the interest rate cap, higher bad loans and a tarnished image spelt trouble for them in the past several years. The financial sector was unharmed throughout the pandemic due to the central bank’s moratorium, which ordered banks and non-banks not to classify loans and follow relaxed rescheduling conditions. This, in turn, prevented them from setting aside funds to cover loan losses that come from profits.
Many banks posted huge profits from their foreign exchange-related businesses since the outbreak of the Russia-Ukraine war as costly global commodities became costlier owing to the disruptions caused by the conflict. The crisis sent the prices of the US dollar to a record high against the local currency amid the fast depletion of the foreign currency reserves.
In the first nine months of 2022, twenty-six banks booked higher profits, year-on-year. Despite the fallout of the pandemic, most banks logged higher profits because of higher commission and fee incomes from a spike in remittance flows and the opening of letters of credit. The pandemic was supposed to deal a major blow to the business of banks but the central bank’s several benefits saved the day for them as they were able to show lower non-performing loans.
The NBFI sector was already in a tight corner because of the irregularities at some companies. Their crisis deepened when Covid-19 arrived on the shores of Bangladesh. And the impacts of the crisis were more severe in the case of NBFIs than banks. Among 21 listed NBFIs, 16 booked higher profits in 2018. The number fell to five in 2019, 11 in 2020 and six in 2021. The number of NBFIs that posted higher profits in the January-September period of 2022 stood at four.
We reiterate the urgency to establish good governance inside the banks and book the loan defaulters under legal scanner, however, the scammers were awarded policy support to reap their balance through different illegal ways. The government is neither serious about nabbing them or disclosing them. The sector is not far from falling apart.