This is welcome that the central bank has adopted international loan classification standards and changed classification policies to get the actual picture of default loans. But a lack of measures to recover defaulted loans is worrying. The central bank has reduced the timeframe to classify loans as defaulted from the previous 270 days to 180 days. Since the adoption of international standards, the volume of non-performing loans in the banking sector has skyrocketed by Tk 2 lakh crore in one year, reaching a staggering Tk 3.45 lakh crore as of December 2024. The figure was Tk 1,45,633 crore in December 2023. During the Awami League regime, a massive amount of toxic loans was not shown as defaulted through data manipulation and a mere 10 per cent loans were showed as defaulted. With the recent figure, about 20 per cent of total bank loans, amounting to Tk 17.11 lakh crore, have been classified as non-performing, the highest ratio in South Asia. About 42 per cent of outstanding loans in state-owned banks and about 15 per cent of outstanding loans in private banks have been classified as non-performing.
The central bank governor says that the figure is likely to be much higher and can reach about 30 per cent as the central bank is set to further reduce the timeframe for loan classification to 90 days in April. Even a 20 per cent default loan suggests an alarming state of the banking sector. The sector suffered from systemic corruption and political influence in 15 years, when massive sums were syphoned off from banks in fictitious names, loans were often reported as 鈥榬egular鈥� through data manipulation and repeated rescheduling was allowed with lenient policies. The total non-performing loans stood at Tk 22,481 crore in 2009, when the Awami League assumed office. Non-bank financial institutions have also suffered from a sharp increase in non-performing loans, with many institutions having over 90 per cent of their outstanding loans as defaulted. It is not unexpected that renowned international credit rating agencies have downgraded their outlook on Bangladesh鈥檚 banking sector, citing a sharp rise in defaulted loans, scams, irregularities, mismanagement and a lack of good governance. It is impossible for the banking sector to step out of the crisis unless the government and the central bank take strict measures to discipline the sector.
The central bank should conduct a comprehensive audit of all loans to uncover the full extent of default loans, take decisive action to recover defaulted loans and hold banks accountable for their failure to recover the money. The government and the central bank should now prioritise transparency, accountability and sound management practice in the banking sector.
