The banking sector is one among many that has plunged into a sorry state during the 15 years of Awami League regime. The sector witnessed major financial scams and a record surge in non-performing loans. The Awami League government pushed the sector into a precarious state through approval for banks, the appointment of partisan people to bank boards and sanctions of loans to concessions to loan defaulters. This has left a few banks clinically dead and most of the banks fragile. Non-performing loans soared, as the Bangladesh Bank says, by Tk 190,000 crore to Tk 2,11,391 crore in June 2024 from only Tk 22,240 crore in June 2009. The situation is worse in state-owned banks. The volume of bad loans in state-owned commercial banks jumped to Tk 1,02,483 crore while the total amount of defaulted loans in private commercial banks rose to Tk 99,921 crore in June. Non-bank financial institutions have also faced a sharp increase in non-performing loans. The amount of total distressed assets in the sector could be much higher if the amount of rescheduled loans and written-off loans is included. At least, Tk 92,261 crore was embezzled, as a Centre for Policy Dialogue report says, in only 24 major banking scandals in 2009鈥�2023.
It is not surprising that international credit rating agencies have downgraded their outlook on the Bangladesh鈥檚 banking sector, citing a sharp rise in defaulted loans, scams, irregularities, mismanagement and a lack of democratic governance. It is impossible for the banking sector to step out of the crisis unless the government and the central bank show the political will to discipline the sector. But what compounded the situation was that the previous government and the central bank were more willing to save the people responsible for the sorry state of the sector than to hold them to justice. For example, when the banking sector is plagued with a rising default rate, the central bank offered one irrational concession after another to defaulters. The central bank relaxed the rules on loan classifications and rescheduling several times. The borrowers enjoyed relaxed repayment scopes in both 2020 and 2021, including a one-year moratorium because of the Covid outbreak. In July 2022, the central bank offered another big break to loan defaulters by way of opportunities to reschedule loans for up to 29 years and reduced the amount of the down payment to 2.5 per cent of the outstanding loan amount. All this while, scams in loan disbursement continued, with shell companies receiving hefty amounts in loans without proper collateral and documents.
Political influence and manipulation, coupled with a lack of democratic governance, were reasons for the rise in non-performing loans, scams and irregularities. The interim government and the central bank must now prioritise transparency, accountability and sound management practices in the banking sector. The authorities must also ensure that loans are sanctioned judiciously and loan defaulters, errant banks and officials are brought to justice.