Bangladesh now has the highest ratio of non-performing loans in South Asia with nearly 17 per cent of the country鈥檚 total loans categorised as defaults, which, according to experts, could have far-reaching consequences for the country鈥檚 financial sector.
The ratio has surpassed that of India, Pakistan, Nepal, Bhutan, Maldives, Nepal and even Sri Lanka, which is going through turmoil.
The volume of loan defaults in the banking sector surged to Tk 2.85 lakh crore in September, increasing by Tk 73,586 crore in just three months.
According to experts, the rise from a mere 1.9 per cent in 2011 to the current level underscored decades of mismanagement, regulatory leniency, and unchecked corruption.
These toxic loans eroded banks鈥� lending capacity, impeded credit flow to productive sectors and hampered economic growth consequently, they said.聽
When bank loans turn into sour loans, banks get neither principal nor interest from them, the experts said.
The current banking crisis occurred due mainly to fraudulent practices under the Awami League government, they said.
Substantial amounts were taken out of banks using anonymous names, manipulated data, and frequent rescheduling to hide loan defaults, they added.
During the Covid pandemic, relaxed repayment terms further exacerbated the problem, with many borrowers deliberately defaulting, leveraging political connections to avoid repayment, bankers said.
It was almost a common tendency among borrowers that once they managed to have loans, they thought that they did not need to repay.聽 Bank owners had聽 sometimes influenced the management to give loans to their desired candidates, they said.
After the ouster of the Awami League government on August 5 in a student-people uprising, the actual extent of irregularities began to surface.
India currently has the lowest loan defaults ratio in South Asia, recording 2.8 per cent of total loans in June. The ratio is 7.6 per cent in Pakistan, 12.8 per cent in Sri Lanka and 7.49 per cent in Maldives.
Every quarter, the amount of defaulted loans has been making a record. Since the default loans have skyrocketed in the banking industry, many banks have been facing acute liquidity crisss and capital shortfalls, Experts said.
The trend of default loans in Bangladesh is likely to continue surging as the central bank has adopted international standards and minimised data manipulation, they said.
Experts expressed grave concerns about the escalation of defaulted loans, warning of severe consequences for both the banking sector and the broader economy.
Masrur Reaz, chairman of think tank Policy Exchange of Bangladesh, told 抖阴精品 that much of the defaulted loans was tied to loans obtained through political and financial lobbying.
The financial system had almost collapsed with聽 oligarchs and politically connected individuals looting depositors鈥� money, he said,
Good borrowers were denied loans, while bad borrowers leveraged political clout to secure funds, Reaz observed.
According to him, this crisis has affected Bangladesh鈥檚 credit rating and discouraged borrowing by reputable businesses.
Due to this reputational crisis and liquidity crunch, crisis-hit banks failed to honour customers鈥� payments and withdrawal requests, he added.
He said that due to the crisis in the banking sector, confidence of good businesses went down and the country鈥檚 credit rating was adversely affected.
Experts suggested that the central bank needed to identify the underlying causes of bank failures and address them to ensure good governance in the financial market. Without such actions, the current banking crisis will persist.
If written-off loans, rescheduled loans and loans remaining unrecovered due to court proceedings are considered, the actual loan defaults would be near Tk 6 lakh crore or 32 per cent of total loans, said Moinul Islam, former Chittagong University economics professor.
The problem is more severe than it has been shown, he added.
He said that the previous government did not even try to rein in the jump in loan defaults, rather somehow encouraged the defaulters in taking loans.
Huge amount of these loan defaults has been laundered, he said.
The government must introduce a special tribunal for top 10 loan defaulters in the country, otherwise the success of reforms could be minimal.