The banking sector plays a vital role in the economic framework of Bangladesh. However, one of the sector's most pressing challenges in recent times is the rising rate of non-performing loans (NPLs). According to the latest statistics from Bangladesh Bank, as of September 2024, the amount of NPLs in the banking sector has reached BDT 284,977 crore, approximately 17 per cent of the total distributed loans. This massive volume of NPLs poses a significant threat to the country's financial stability.
Reasons for the increase in NPLs include economic disruptions caused by COVID-19, global economic uncertainties, and the disbursement of loans without due diligence. Additionally, loans have been issued to unqualified borrowers due to political influence. Despite stringent laws for loan recovery, their implementation remains inadequate. Furthermore, factors such as inflation, the devaluation of the Bangladesh currency against the dollar, and increased import costs have negatively impacted the financial capabilities of borrowers.
According to the BB's new master circular, all loans will be considered overdue if they surpass their stipulated repayment period.
Additionally, Bangladesh has fulfilled various conditions at different times to secure loans from the International Monetary Fund (IMF). As part of this process, Bangladesh Bank has now revised its loan classification policy.
Addressing the crisis requires well-planned and effective measures. Banks should adopt flexible policies to facilitate easier loan repayment for borrowers and ensure rigorous monitoring of loan approvals and recoveries.
Enhancing transparency and accountability in the banking sector is also crucial. Loan rescheduling options and support packages for struggling businesses should be introduced, along with strict supervision of the loan approval process and proper due diligence before disbursing new loans. The government should promote investment in the business sector and ensure export growth through strategic initiatives.
The rising NPL rate is not only a challenge for the banking sector but also a significant obstacle to the overall economic system. Addressing this issue requires integrated efforts.
Effective government policies, strict oversight by the central bank, and transparent management within banks are essential to improving the NPL situation. Failure to control NPLs could jeopardise the country's financial stability and investment climate, ultimately leading to long-term adverse effects on the economy.
Rawshan Jahan
Deputy General Manager
Sonali Bank PLC
[email protected]
