Structural weaknesses behind NPL

Bangladesh's banking sector is witnessing a sharp escalation in non-performing loans (NPLs). According to news report, some banks are currently reporting NPL ratios ranging from 50 per cent to 99 per cent, indicating severe structural and governance deficiencies. These high levels of NPLs can be traced to several critical factors. The absence of independent advisory boards to guide strategic decisions significantly undermines credit discipline. Advisory structures are often ineffective and lack the necessary sectoral expertise, further weakening governance. Misuse of borrowed funds and weak post-disbursement monitoring exacerbate the problem. Unplanned business establishment and expansion, combined with poor investment appraisal and risk management, put financial stability at risk. Additionally, the concentration of decision-making authority makes it difficult to enforce accountability and maintain asset quality.
To stabilise the banking sector and restore investor confidence, several strategic and preventive measures are critical. Formation of independent advisory boards comprising financial and industry experts is essential, along with mandatory advisory approval for large-scale investments and fund utilisation. Continuous monitoring of business performance and risk, adoption of long-term ten-year business strategies aligned with cash-flow projections, and professional business profiling by development analysts can further strengthen governance and reduce NPL risks.
Non-performing loans are not merely instances of credit failure; they represent systemic governance risk. Unless advisory oversight and strategic discipline are reinforced, NPL ratios will remain a persistent threat to financial stability.

Engg. Ahmad
Advisory Specialist
3, R.K. Mission Road
Motijhil, Dhaka