Non-Performing Loans Surge to Tk 6.5 Lakh Crore, Banks Most Responsible

The amount of non-performing loans (NPLs) in the country’s banking sector has now reached a staggering Tk 6.5 lakh crore, which is over a third of the total loans issued by banks. According to a recent report by Bangladesh Bank, the total amount of loans disbursed by banks until September was Tk 18.03 lakh crore, with 35.73% of it now classified as non-performing.

Bankers suggest that the tendency to underreport bad loans, which was prevalent during the ousted Awami League government’s tenure, is no longer the case. As a result, the true extent of non-performing loans is now becoming clear. Some experts predict that the rate of non-performing loans could rise further in the coming months.

When the Awami League-led government first came to power in January 2009, non-performing loans stood at Tk 22,481 crore. Bangladesh Bank calculates NPLs on a quarterly basis, and the latest figures show an increase of Tk 36,169 crore from June to September 2023, bringing the total NPLs to Tk 6,08,346 crore.

During Sheikh Hasina’s 15+ years in power, there was a concerted effort to minimise the reporting of bad loans through the central bank, often involving data manipulation to conceal the true figures. However, after proper accounting, the rate of non-performing loans has now reached approximately 36%, and this could well exceed 40% in the near future, according to economist Moinul Islam, a former professor at Chittagong University.

Bankers highlight that during the Awami League’s rule, there was widespread irregularity, fraud, and corruption within the banking sector, leading to this alarming rise in NPLs. High-profile loan defaults, such as those involving the S Alam Group, Beximco Group, Nasa Group, and the Hallmark Group, as well as the Basic Bank scandal, have significantly contributed to the problem.

Historical Trends and the Growing Problem of NPLs:

In 1999, the rate of non-performing loans in the banking sector stood at 41.1%. By 2011, this had dropped to 6.1%, but after several major scandals, the figures have begun to climb once again. Moinul Islam remarked that, under the 15-year rule of the Awami League government, there was a clear attempt to downplay the severity of NPLs through false reporting. However, with the proper accounting now in place, the truth has been revealed.

Islam also called for the establishment of separate tribunals for the top 10 defaulters in each bank to address the growing issue of non-performing loans.

The Causes of Rising NPLs:
In line with recommendations from the International Monetary Fund (IMF), Bangladesh Bank has started following international standards for determining the amount and rate of non-performing loans. As per new regulations, any loan that is overdue by more than three months is now classified as non-performing, whereas previously, a loan would only be considered bad after nine months.

Provisioning Shortfall on the Rise:
Alongside the increase in non-performing loans, there has been a significant rise in provisioning shortfalls. Provisioning is the practice where banks set aside a certain amount of their earnings as a safeguard for bad loans. The shortfall occurs when banks fail to maintain an adequate reserve for their NPLs.

As of September, the provisioning shortfall in the banking sector stood at Tk 3.44 lakh crore, an increase of Tk 24,511 crore compared to the previous quarter.

Which Banks Are Most Responsible?
Almost all banks have non-performing loans, but state-owned banks and some private banks are responsible for a larger share of the problem. Banks like Janata Bank, Agrani Bank, National Bank, and IFIC Bank have notably higher amounts of non-performing loans. Additionally, five banks, which are set to merge—First Security Islami Bank, Social Islami Bank, Union Bank, Global Islami Bank, and EXIM Bank—are collectively responsible for a large portion of the bad loans, with about Tk 1.5 lakh crore of their loans classified as non-performing.

These five banks were previously under the control of the S Alam Group, with significant amounts of money allegedly withdrawn under various names, which are now classified as bad loans.

Syed Abu Nasir Bakhtiar Ahmed, the Chairman of state-owned Agrani Bank, pointed out that the amount of NPLs has now reached Tk 6.5 lakh crore, having risen from Tk 2-4 lakh crore over the years. He also highlighted that for years, banks had hidden the true figures of NPLs and manipulated data to show profit, rather than reporting accurate figures.

Bakhtiar Ahmed emphasized that the increase in NPLs reflects the long-standing mismanagement and corruption under the previous government. However, with the current interim government in place, Bangladesh Bank has been instructed to provide transparent reporting on NPLs, and while the numbers are troubling, the accurate reporting is a positive step forward.

Summary:

The increase in non-performing loans is a major concern for the country’s banking sector, and it is becoming evident that years of systemic corruption and mismanagement have contributed to the current crisis. However, the move towards transparent accounting by the Bangladesh Bank could signal a shift towards addressing these long-standing issues.