Bangladesh Bank provided various policy supports, including special loan rescheduling facilities, to reduce non-performing loans (NPLs) in the country’s banking sector. Despite these measures, defaulted loans have continued to increase rather than decline. NPLs rose by BDT 314.87 billion during the first quarter of the current fiscal year (January–March), according to the central bank. Data released by the regulator show that outstanding default loans in the banking sector exceeded approximately BDT 5.88 trillion at the end of March, accounting for 32.26 percent of total outstanding loans.
Bangladesh Bank publishes NPL data on a quarterly basis. The figures as of March 31, covering the first quarter of the year, were released on Tuesday. Total outstanding loans in the banking sector stood at around BDT 18.20 trillion on December 31 of last year, according to the central bank. Of this amount, over BDT 5.57 trillion was classified as defaulted, representing an NPL ratio of 30.60 percent.
During the first three months of the year, total outstanding loans increased by only BDT 37.53 billion. By the end of March, the total loan portfolio had reached around BDT 18.24 trillion. Of this amount, about BDT 5.88 trillion was classified as non-performing, pushing the NPL ratio up to 32.26 percent. But the ratio had previously climbed to nearly 36 percent in September last year.
Commenting on the increase in default loans, Bangladesh Bank spokesperson and Executive Director Arif Hossain Khan told Bonik Barta, “There’s no longer any concealment in the classification of non-performing loans. All loans that qualify as defaulted are now being properly reflected in banks’ financial statements. The figures have consequently increased somewhat. The current business and trade environment in the country has also had an impact.”
He added, “Many loans disbursed through irregularities and corruption during the 15 years following 2009 had effectively become non-performing but were concealed through various means. Following the student-led mass uprising, many of these previously hidden default loans came to light. Banks generally place special emphasis on loan rescheduling during the final quarter of the year. The volume of default loans consequently declined somewhat in September last year. But additional loans have since fallen into default, causing the overall amount to increase. The central bank is making every effort to restore good governance in the banking sector.”
The increase in non-performing loans (NPLs) also led to a rise in the banking sector’s provision shortfall during the first quarter of the year (January–March), according to Bangladesh Bank data. At the end of December, the sector’s provision deficit stood at around BDT 1.91 trillion. By the end of March, however, the shortfall had exceeded around BDT 2.05 trillion.
Nearly 94 percent of the banking sector’s defaulted loans are now classified as bad or loss assets. This means there is little prospect of recovering BDT 5.51 trillion in loans through normal collection processes.
State-owned banks were in the most vulnerable position in terms of NPL ratios at the end of March. Their default loan ratio stood at 45.85 percent. During the period, these banks had disbursed loans amounting to around BDT 3.26 trillion, of which around BDT 1.49 trillion had become non-performing.
Although the state-owned banks were required to maintain provisions of around BDT 1.03 trillion, they were able to set aside only BDT 288.66 billion. Their provision shortfall consequently reached BDT 744.71 billion. But this figure does not reflect the full extent of the deficit, as state-owned banks have reduced the reported provision gap through policy exemptions granted by the central bank.
As of the end of March, private commercial banks had outstanding loans of around BDT 13.83 trillion. Of this amount, around BDT 4.16 trillion was classified as non-performing. Accordingly, 30.11 percent of the loans disbursed by private commercial banks were in default. Their total provision shortfall stood at around BDT 1.31 trillion.
Specialised state-owned banks had disbursed a total of BDT 470.86 billion in loans by the end of March, according to central bank data. Of this amount, BDT 191.75 billion remained on the list of defaulted loans, resulting in an NPL ratio of 40.72 percent. Meanwhile, 4.82 percent of the BDT 676.28 billion in loans disbursed by foreign banks operating in Bangladesh were classified as non-performing at the end of March.