BANGLADESH’S financial sector stands at a critical juncture, as defaulted loans continue to surge, threatening the stability of both banks and non-bank financial institutions (NBFIs), reports this newspaper on Wednesday.
The latest data from Bangladesh Bank paints a worrying picture, with ten banks reporting a provision shortfall of Tk 31,549 crore and sixteen NBFIs falling short by Tk 1,954 crore as of June 2024.
With defaulted loans now accounting for 12.56 per cent of total loans in the banking sector and an alarming 33.15 per cent in NBFIs, the situation has reached a point of severe crisis.
This trend cannot be ignored. The strain on financial institutions is more than just numbers; it signals deep structural issues in the sector.
Major players like National Bank, BASIC Bank, and Dhaka Bank are struggling to manage their growing financial deficits, largely driven by rising non-performing loans (NPLs).
This is a result of institutional failures to secure fundamental banking operations and address longstanding regulatory weaknesses.
The World Bank’s observation that the NPL ratio in Bangladesh’s banking sector is understated only adds to the urgency.
Lax definitions, poor reporting standards, and weak regulatory enforcement have concealed the true extent of the financial distress. The actual situation is likely far more severe than current data suggests.
In addition, economic pressures have caused many borrowers to default, while others have been unable to repay loans due to a deposit contraction.
Shariah-based banks controlled by powerful conglomerates, such as the S Alam Group, have borrowed heavily — over Tk 1 lakh crore — and much of this is at risk of becoming defaulted loans.
The result is a growing provision shortfall that threatens to destabilise the entire financial system.
It is clear that without immediate and decisive action, Bangladesh’s financial sector may face long-term damage that could hinder economic growth and shake public confidence in its institutions.
The government, financial regulators, and stakeholders must come together to address this escalating crisis.
Stronger regulatory oversight, enhanced transparency in reporting, and a commitment to ensuring financial institutions meet their security obligations are critical steps in restoring stability.
The time for action is now before the sector faces irreparable harm.
Failure to act swiftly could result in more than just financial losses — it could erode the trust in Bangladesh’s banking system.