Special Correspondent :
Toxic loans in banks have grown significantly in the last 10 years thanks to reckless lending and bad governance in the banking sector.
According to Bangladesh Bank, the amount of non-performing loans (NPLs) in banks stood at Tk. 99,370 crore as of September last year from Tk 22,481 crore in 2009.
Of the total amount, nine state-owned banks accounted for Tk 49,434 crore defaulted loans. In contrast, private and foreign banks’ defaulted loans stood at Tk 49,935 crore.
Moreover, banks have written-off Tk 49,745 crore bad loans altogether by this time. If the amount is considered, banking sector’s total NPLs would be stood at Tk 1,49,115 crore.
Analysts, however, said that the data on default loans provided by Bangladesh Bank does not show the actual picture, as many banks tend to conceal their NPLs to show net profit.
The NPL may go even higher if banks present the genuine books of account, they added.
“NPLs in banks have grown alarmingly in the last ten years posing a potential threat to the country’s financial sector,” Economist Dr. Ahsan H. Mansur told The New Nation yesterday.
He observed that the average ratio of NPL of total outstanding loans in Bangladesh rose to double digit whereas it is single digit in neighbouring countries. “Bad governance and loan irregularities are mainly responsible for the gloomy picture of the country’s banking sector.”
Dr. Ahsan H. Mansur, an Executive Director of Policy Research Institute (PRI) of Bangladesh, further said that the high ratio of default loans reflects the failure of the government to maintain discipline in the country’s financial sector.
“The government should form an independent banking commission to mitigate the current banking crisis. Besides, necessary legal action should also be taken against the loan defaulters and scammers to restore discipline in the banking sector. Otherwise, it will affect the stability of the country’s financial sector and economic growth,” he added.
Available data shows, defaulted loans in banks increased nearly 77,000 crore in the last ten years. The amount was Tk 22,481 crore only when the ruling Awami League government took office in 2009.
It increased slightly in 2010 reaching Tk 22,710 crore. But in the following year, it came down to Tk 22,644 crore and took a big jump in 2012 reaching Tk 42,725 crore.
The total amount of bad loans came down slighty again in 2013 standing at Tk 40,583 crore. It again increased significantly in 2014 reaching Tk 50,155 crore, while it stood at Tk 51,351 crore in 2015 and Tk 62,172 crore in 2016.
The banking sector’s defaulted loans stood at Tk 80,307 crore in 2017 and finally it reached Tk 99, 370 crore at the end of September 2018. “Bangladesh’s banking sector is now maintaining the highest ever NPLs. This mainly happens due to lack of good governance and big loan scandals in the banking sector,” World Bank’s Lead Economist in Bangladesh Dr Zahid Hussain told The New Nation.
He said, it the trend is not controlled, it will push many banks to a systemic risk and thereby threaten stability of the banking sector. “The government should promptly take action to bring discipline in the banks and recover the NPLs from habitual defaulters,” said Dr Zahid Hussain, adding, “Legal complexities are one of the impediments in recovering defaulted loans. The government should also make necessary reforms in relevant laws to improve the situation. When asked, Dr Zahid Hussain said, major loan scandals occurred mainly in the public banks as their governance structures remains fragile due to appointment of directors under political consideration.
Scams in banks cost Tk 22,502 crore in last 10 years, which is about four-fifth of the project cost for Padma Bridge and two-fifth of Sonadia deep-sea port, according to a report of the Centre for Policy Dialogue (CPD). “The banking sector’s NPLs have reached all-time high last year accounting for about 11.45 per cent of the total outstanding loans. It would be higher if bad loans were not written off,” Distinguished Fellow at the CPD Prof Dr Mustafizur Rahman told The New Nation. He said the growing non-performing loans have posed a big threat to the sustainable growth of Bangladesh, which was on course to become a developing country by 2021.
“Banking sector is the backbone of the Bangladesh economy and recognizing the truth, the government should make all-out effort to strengthen the sector,” added Prof Dr Mustafizur Rahman.
He also suggested for forming an ‘independent commission’ for identifying problems of the banks. Furthermore, the government should reform the judicial process for speedy recovery of the defaulted loans, upheld independence of the central bank and discontinue recruitment of directors in state-owed banks under political consideration in order to bring discipline in the country’s banking sector.
“Appointment of directors under political consideration has worsened the corporate governance in the state-owed banks, which are now holding nearly 50 per cent of the banking sectors’ defaulted loans. So, the government must abandon the process to improve corporate governance and financial health of public sector’s banks,” he noted.
