Default loans in Bangladesh’s banks keep swelling

The government has announced a number of facilities and waivers for big borrowers to pay off their debts in the past few years, but loans defaulted on in the banks have kept rising, with nearly Tk 91.4 billion added in the first quarter of 2022-23.

The default loans stood at Tk 1.34 trillion at the end of September – 9.36 percent of the total outstanding loans disbursed by the banks, or Tk 14.36 trillion. The non-performing loans were 8.96 percent of the total outstanding loans at the end of June. 

According to the latest data, the six state-owned banks had 23 percent of their loans defaulted on at the end of September. The rate was 6.25 percent at the private banks, 11,75 percent at the three specialised government banks and 4.75 percent at the nine multinational banks.

While capping the banks’ lending rate at 9 percent in 2019, Finance Minister AHM Mustafa Kamal hoped the ceiling would help the borrowers repay. After the loan defaulters were given some facilities to repay the bad debts decreased slightly by the end of that year. 

With more waivers during the COVID-19 pandemic, default loans fell further in 2020. The government also decided to write-off debts at the time. After the situation started to normalise, default loans increased again in 2021.

Professor Selim Raihan, executive director of South Asian Network on Economic Modeling, thinks the actual amount of default loans would be over Tk 2 trillion, far higher than what Bangladesh Bank data showed.

The default loans, in his words, are leaving a “deep scar” in Bangladesh’s banking sector, and the central bank and government “lack sincerity” in addressing the issue.

The International Monetary Fund in 2019 said the Bangladesh authorities were hiding default loans and the actual amount should be around Tk 2.5 trillion.

According to the Bangladesh Bank, defaulted loans amounted to Tk 981.64 billion at the time of the IMF report.

In a recent meeting with the central bank, an IMF delegation questioned Bangladesh Bank’s notice on the rescheduling of debts earlier this year. The IMF team visited Bangladesh to discuss $4.5 billion loans sought by the country amid a lingering economic crisis.

Central bank spokesperson Abul Kalam Azad said at that time they provided information on steps to control loan defaults to the IMF team, the notice on loan rescheduling and action against defaulters, especially the big industrial groups.

Azad declined to comment when contacted about the latest data on default loans.

Salehuddin Ahmed, a former governor of the central bank, said the authorities should be firm on collecting funds from those who “willingly” default on loans. “The funds should be collected by selling lands and other assets of these companies.”