Special Correspondent :
Investors in the industrial sector are struggling to launch new businesses or expand existing ones due to a slowdown in loan approvals by state-owned commercial banks.
A central bank report sent to the Financial Institutions Division on May 7 reveals a worrying trend as defaulted loans at state-owned banks have surged by 73.20 percent to Tk. 85,870 crore in March 2024 compared to 2022.
The report further emphasises that the credit squeeze extends beyond state banks, as many private banks, with the exception of foreign institutions, are also hesitant to offer fresh loans or credit lines to traders. Experts warn that a prolonged slowdown could trigger a serious economic crisis in the country.
“Revenue generation, job creation, and social activities will all be severely hampered if businesses cannot expand,” experts cautioned.
Bangladesh Bureau of Statistics (BBS) data shows the number of unemployed individuals in the country exceeding 25 lakh.
In contrast, foreign banks like Standard Chartered, HSBC, Commercial Bank of Ceylon, Citibank NA, Woori Bank, State Bank of India, Bank Al Falah, and Habib Bank collectively reported profits totaling Tk. 4,426 crore in 2023.
Experts emphasise the need for the government to maintain a positive flow of credit to sustain job creation and private sector investment. They point out that banks earn profits by investing money through various loan schemes. If banks don’t lend to businesses, how will they generate income to operate nationwide? Bangladesh Bank data paints a concerning picture as non-performing loans (NPLs) or defaulted loans in the banking sector reached a record Tk. 156,039 crore as of June last year, representing 10.11 percent of total disbursed loans.
A deeper dive into the central bank report reveals the extent of the challenge faced by state-owned banks. As of March 2024, the total amount of loans and advances disbursed by Sonali, Janata, Agrani, Rupali, Bangladesh Development Bank Limited (BDBL), and BASIC stood at Tk. 313,149 crore. The report paints a grim picture of rising defaults. In March 2022, the defaulted loans of these six banks amounted to Tk. 49,576 crore. This figure jumped to Tk. 60,642 crore by March 2023 and further to a staggering Tk. 85,870 crore by March 2024, reflecting a 73.20% increase in just two years.
Individual banks within the system are struggling as well. Over this two-year period, Janata Bank witnessed a staggering 131 percent surge in defaulted loans, while Agrani Bank saw a 121 percent increase.
Loan recovery efforts by these banks have been equally disappointing. Janata Bank, despite having the highest target of Tk. 2,500 crore for defaulted loan recovery in 2024, managed to collect a mere Tk. 41 crore by March. Similarly, Agrani Bank’s defaulted loans ballooned from Tk. 14,000 crore to Tk. 20,000 crore within a year, while their recovery rate stands at a meagre Tk. 68 crore against a target of Tk. 1,535 crore for this year. The overall recovery rate across the six banks paints a concerning picture. As of March 2024, they had only managed to collect Tk. 317 crore against a target of Tk. 6,785 crore for defaulted loan recovery by the end of 2024. This translates to a meagre 4.67 percent recovery rate of the banks’ one-year target and a dismal 0.36 percent of the total defaulted loans.
A closer look at the top defaulters reveals an even steeper challenge. Out of the Tk. 30,491 crore owed by the top 20 defaulters of these six banks, the recovery target for 2024 is just Tk. 2,745 crore. However, by the end of the first quarter, a mere Tk. 8.7 crore had been collected. The data exposes the significant exposure of individual banks to these top defaulters. Sonali Bank is owed Tk. 5,081 crore by its top 20, while Janata Bank and Agrani Bank are owed a staggering Tk. 9,097 crore and Tk. 8,928 crore, respectively, by their top defaulters. Despite the challenges, Bangladesh Bank is taking steps to address the issue. They have set an ambitious target to bring default loans down to below 8% of the country’s total outstanding loans by June 2026.
This initiative aims to strengthen corporate governance within the banking sector.
“Liquidity issues are impacting some banks,” acknowledged Fayaz Alam, Deputy Managing Director of Janata Bank, in an interview with The New Nation. “The slow recovery rate of defaulted loans is a concern. We need strong initiatives to recoup this money.”
He added, “While some state-owned banks are still issuing loans, the scale has shrunk considerably. We must overcome this crisis for the sake of the national economy.”
The central bank’s action plan outlines a two-and-a-half-year roadmap to reduce non-performing loans (NPLs). They aim to bring NPLs down to 10% for state-owned commercial banks and below 5% for private banks.
According to Bangladesh Bank data, the gross NPL ratio in the banking sector reached 9.93% by September 2023, reflecting a rise from 9.36% in September 2022. As of June 2023, the NPL figure stood at a concerning Tk. 156,039 crore, representing 10.11% of the total disbursed loans. Bangladesh’s total outstanding loans in the banking sector amounted to Tk. 1,542,655 crore by June 2023.
It’s important to note that the International Monetary Fund’s (IMF) approval of a USD 4.5 billion loan for Bangladesh came with a condition: reducing defaulted loans to 10%.
Experts point to a deeper issue: the banking sector’s vulnerability to powerful clients with connections to the state mechanism. This lack of discipline in loan disbursement is blamed for the high default rates at some state-owned banks. The road to recovery will require addressing these systemic issues alongside efforts to improve loan recovery rates.