Banking sector needs good governance to trim down the culture of bad loans
The unveiling of Bangladesh Bank’s comprehensive roadmap to tackle the escalating issue of defaulted loans is undoubtedly a commendable step towards revitalizing the country’s banking sector.
The sector, now an Achilles heel for the economy, has been burdened with a staggering amount of defaulted loans, reaching Tk 155,397 crore at the end of September last year, constituting 9.93 per cent of total outstanding loans.
The 17-point action plan, thoroughly vetted by the International Monetary Fund, signifies a unified effort to instill discipline and good governance. If rigorously implemented, the roadmap sets ambitious targets to bring down defaulted loans to less than 8 per cent of outstanding loans by June 30, 2026, including specific goals for state banks (less than 10 per cent) and private banks (under 5 per cent).
The strategy comprises pivotal measures, including the reduction of the time for loan write-offs from three to two years, the establishment of a ‘write-off loans recovery unit,’ and the integration of loan recovery into bank CEOs’ key performance indicators.
The proactive approach of creating an asset management company to purchase bad and written-off loans further demonstrates a commitment to addressing the issue at its core.
Yet, skepticism lingers among experts regarding the successful execution of these plans. The history of introducing similar policies without execution raises concerns about the efficacy of the newly announced roadmap.
Experts emphatically stress the need for an independent banking regulator, underlining the significance of fortifying the regulatory framework and ensuring the central bank’s autonomy to act independently.
While the intentions behind the reform plan are noble, their success hinges on overcoming historical challenges and fostering a commitment to implementation. The revival of the banking sector is not just a necessity but a linchpin for Bangladesh’s economic stability.
It is imperative for authorities to navigate the complexities and translate these aspirations into tangible actions. Now is the time for resolute action, ensuring that the proposed reforms become more than just promises on paper, securing a robust and stable future for the nation’s financial landscape.
