The banking sector ailing with default loans

The non-performing loans (NPLs) in Bangladesh’s banking sector hit a new record in June as the withdrawal of a relaxed central bank policy, slowdown in business sales, and deliberate non-payments pushed up the volume of bad loans to Tk 156,039 crore.

This was the highest NPL in the country’s history with the previous high of Tk 134,396 crore recorded in the third quarter of last year.

In the three months to June this year, Tk 24,419 crore loans turned sour alone.

At the end of June, NPLs accounted for 10.11 per cent of the total credits disbursed, according to the latest data from the Bangladesh Bank.

Outstanding loans stood at Tk 1,542,655 crore.

In Bangladesh, a lack of good governance, relaxed policies pursued by the central bank, political interference, and irregularities have largely been responsible for the upward trend of NPLs.

The volume started to go up after the withdrawal of a central bank relaxation on loan classification introduced amid the Covid-19 pandemic.

Experts said the shown NPLs are not the actual figure of bad loans because it does not include a huge volume of credits stuck in money loans court.

If the entire amount of the loans involved in the court cases and the write-off loans are taken into consideration, the total bad loans in the banking sector will be Tk 450,000 crore.

Local businesses face multiple problems now as their sales have got stressed, making them unable to pay bank loans.

Many borrowers failed to export in recent times, which has turned their loans secured against letters of credit into forced loans.

Those credits have now become default loans.

NPLs reduce interest income, lower profitability, and deplete banks’ capital bases.

They also require higher risk weights and minimum loss coverage in banks’ capital requirements, straining liquidity and increasing funding costs.

With less money available to extend new loans, banks’ capacity to lend and make profits is further constrained.

All the circumstances evidence showed that the government is relaxing the policy to loot the banks, destroying the economy.

Without a proper system that holds the government accountable, NPLs will not be realized.