Bangladesh's banking sector sees classified loans make a quantum leap to Tk 2.85 trillion, largely for a redefined default-counting system applicable to term credits that is also revealing 'hidden' debts.
Such all-time high figure of NPLs, obtained in September data, compels banks to limit their credit supply to the borrowers. Besides, banks' profitability is also hit hard as they have to maintain a portion of funds for NPL provisioning.
The central bank of Bangladesh revised overdue-status-counting system for term lending to a curtailed tenure of six months from previous nine months, according to some senior bankers.
This counting arithmetic will be revised further from 31 March 2025 and onwards when such loans will be classified within three months instead of the current six months, according to them.
The volume of non-performing loans (NPLs) jumped by nearly 96 per cent or Tk 1393.44 billion to Tk 2849.77 billion as on September 30, from Tk 1456.33 billion as on December 31, 2023, according to the Bangladesh Bank's latest statistics released Sunday.
The amount of classified loans was Tk 1553.98 billion a year before.
However, the amount of NPLs increased by nearly 35 per cent or Tk 735.85 billion to Tk 2849.77 billion during the third quarter (Q3) of this calendar year, from Tk 2113.87 billion in the preceding quarter (Q2), the BB data showed.
The share of classified loans rose to 16.93 per cent of the total outstanding loans during the period under review from 9.00 per cent nine months ago. It was 12.56 per cent as on June 30, 2024.
Default loans include substandard, doubtful and bad/loss of total outstanding credits which stood at Tk 16828.22 billion (over Tk 16.82 trillion) as on September 30, 2024, from Tk 16176.89 billion as on December 31, 2023. It was Tk 15651.96 billion as on September 30, 2023. During the period, the total amount of NPLs with six state-owned commercial banks (SoCBs) rose to Tk 1261.11 billion, from Tk 657.81 billion as on December 31, 2023. It was Tk 1024.84 billion in Q2 of this calendar year.
On the other hand, the total amount of classified loans with 43 private commercial banks (PCBs) reached Tk 1498.06 billion in Q3, from Tk 709.82 billion in the final quarter of last year. It was Tk 999.22 billion as on June 30 last.
The NPLs of nine foreign commercial banks (FCBs) rose to Tk 32.46 billion during the period under review, from Tk 32.01 billion in Q4 of 2023. It was Tk 32.30 billion in Q2 of this calendar year.
The classified loans with three specialised banks (SBs), however, stood at to Tk 58.14 billion in Q3 of 2024, from Tk 56.69 billion nine months before. It was Tk57.57 billion in Q2 of this calendar year.
Talking to The Financial Express, spokesperson for the central bank Husne Ara Shikha said the classified loans increased significantly as the grace period for term loans has been reduced.
"A portion of unclassified loans has turned NPLs after the vacating of writ petitions," Ms Shikha noted.
Bankers attribute this rise in the NPL mainly to the new classification rules for term loans, which is now 180 days.
They also said July-August student-people movement to oust the Awami League government and subsequent floods in many parts of the country forced many to delay the repayment of the loans, leading to rise in the NPLs.
They noted that there were some inherited problems in production, such shortage of gas and other infrastructure problems.
Selim RF Hussain, managing director and CEO of BRAC Bank, says the hidden loans are now coming out gradually as Bangladesh is now pursuing international best practices for the banking industry.
"In future, the NPL volume will be much higher once there is conduct of forensic audit," Mr Hussain, also chairman of the Association of Bankers, Bangladesh (ABB), told the FE.
Another banker, Syed Mahbubur Rahman, managing director and CEO at the private commercial bank MTB, also mentions political unrest during July-August and floods in Cumilla, Feni and Noakhali as the cause as that created some problems in the industrial sector.
"During the period, goods transportation across the country faced problems while demand side was weak under higher inflationary pressure on the economy," Mr. Rahman says further explaining the situation.
Economists see such a spike in NPLs as "concern" for the economy as it will squeeze access to loans for the potential borrowers.
Dr Masru Reaz, chairman of the Policy Exchange of Bangladesh, told the FE that there were many businessmen loyal to the ousted Awami League government and they are now absconding which may be one key reason behind the rise in NPL volumes.
Many big entrepreneurs are on the run due to the changes in the country's political landscapes.
The interest rates in the banking industry increased as the central bank has been pursing tightfisted monetary policy to contain inflation. This led to rise in the policy rate to 10 per cent.
"The interest-rate hikes forced many to default on the loans," Dr Masrur said.
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