Distressed assets in Bangladesh’s banking sector surpassed Tk 6.75 lakh crore at the end of FY24, an amount equivalent to the cost of 13.5 Dhaka Metro systems or 22.5 Padma Bridges, according to a draft White Paper released on Sunday.
Debapriya Bhattacharya, head of the 12-memebr committee formed to prepare the much-talked-about paper submitted to chief adviser Professor Muhammad Yunus on the day.
The interim government that assumed power on August 8, three days after deposed prime minister Shekh Hasina fled to India on August 5 amid a mass uprising, appointed the committee on August 28 and asked it to submit the report in 90 days.
The report highlights that the banking sector’s woes are not due to isolated incidents but stem from systemic failures and regulatory loopholes that enabled widespread malpractice.
Distressed assets include non-performing loan, rescheduled, restructured, writ ten-off, and litigated loans. The review of the White Paper puts the banking sector on top of the most corruption-ravaged sectors, followed by physical infrastructure, and energy and power.
‘Persistent loan defaults and high profile scams have eroded financial stability and diverted capital away from productive sectors,’ it said.
A fragmented regulatory system allowed significant embezzlement through fake companies or loans granted without proper documentation.
This privilege was often extended to large borrowers, including politically connected entities.
‘The culprits within the banking system are all heavy weights. The big ones coincide with the bad ones,’ it said.
Related-party lending, a glaring issue, has contributed significantly to the crisis.
Directors often arranged reciprocal loans, bypassing weak restrictions on lending to related parties.
By the end of 2023, such practices among directors of eight banks alone accounted for Tk 45,000 crore.
Politically connected borrowers frequently secured massive loans with insufficient collateral, evading legal repercussions due to a culture of impunity and political influence.
Recognised non-performing loans (NPLs) alone reached Tk 2.11 lakh crore by June 2024 — equivalent to the cost of seven Padma Bridges.
These inflated figures highlight the entrenched inefficiency and fragility within the banking system.
The problem worsened as rescheduling and restructuring practices enabled borrowers with poor credit histories to continue accessing new loans.
This lack of accountability reinforced a cycle of defaults and weakened overall financial stability.
Even state-owned banks and politically connected private commercial banks have become persistent threats to the sector.
The White Paper criticises the awarding of excessive banking licenses, which doubled over two decades, oversaturating the market.
Many licenses were issued to oligarchs with close ties to the ruling party, exacerbating corruption.
Boardrooms in several banks were filled with politically aligned or under-qualified individuals, further limiting effective governance.
The lack of autonomy for Bangladesh Bank, coupled with inadequate oversight, compounded the crisis.
Politically influenced decision-making undermined the central bank’s capacity to enforce monetary policy and regulatory measures.
Weak internal and external audits only added to the problem, as technical expertise was often sidelined.
Non-bank financial institutions (NBFIs) also faced severe distress. By September 2023, 29.8 per cent of their disbursed loans, amounting to Tk 21,658 crore, were classified as non-performing.
Just 10 NBFIs accounted for 67.5 per cent of this figure, underscoring the systemic challenges within the broader financial landscape.