The audits are revealing billions of dollars (BDT) in undisclosed loans. Many of these loans are starting to be classified as defaulted due to non-payment of installments.

However, without including the newly restructured banks, the total defaulted loans in the country's banking sector reached BDT 3.4576 trillion by the end of December. As of that time, 20.20 percent of the total loans distributed by the banks were categorized as non-performing, according to Bangladesh Bank.

Bangladesh Bank publishes default loan information every quarter. Yesterday, the central bank held a press conference to release the data for December. During the conference, Governor Dr. Ahsan H. Monsur highlighted the situation of defaulted loans in the banking sector. He stated, "The default loan rate was shown as 9 percent at the end of December 2023. By December 2024, it is expected to rise to 20 percent. I believe default loans will increase by more than 9 percent in the future."

He also commented that default loans were previously understated in the banking sector.

After Ahsan H Mansur took office in August last year, Bangladesh Bank dissolved the boards of 12 private banks. During Sheikh Hasina's time in power, unprecedented corruption occurred in these banks. A senior official of Bangladesh Bank told Bonik Barta, "Special audits are being conducted in the banks whose boards have been dissolved. In some banks, 80 percent of loans have been identified as defaulted. At least BDT 1 trillion in new default loans has not yet been included in the central bank’s records. The special audits of these banks will be completed within the next two to three months. Once the new default loans are added, the default rate is expected to exceed 30 percent by June this year."

Ahsan H. Mansur said, "You won't get your money back by keeping it in the banking sector; that won't happen. We won't let that happen. The government also has some responsibility in this regard. We want to strengthen the banking sector. People's trust in the banking sector must be restored. We will try to merge weak banks. The Bank Resolution ACT has already been created and sent to the ministry for vetting. The Bank Deposit Insurance Act is also being amended."

The Governor said that by the end of December 2024, the total loan balance distributed by banks was BDT 17.11 trillion. Of this, 20.20 percent of the loans had turned into defaulted loans. In September, the default rate was 16.93 percent. At that time, the defaulted loan amount was BDT 2.84 trillion. By December, the defaulted loan amount surpassed BDT 3.45 trillion. This means that in the last three months of the previous year, defaulted loans increased by BDT 607.87 billion.

The Governor also stated that by December, 42.83 percent of the loans in state-owned banks had turned into defaults. He added, "In September, the default rate for state-owned banks was 40.35 percent. By December, the default rate in private banks had risen to 15.60 percent. In September, private banks had a default rate of 11.88 percent."

Ahsan H Mansur mentioned that banks have been instructed to follow international standards when calculating overdue loans. This has led to an increase in defaulted loans. For the sake of the country's banking sector, this step had to be taken. The central bank's inspection department has classified some large borrowers' loans as defaulted. Court stay orders related to defaulted loans have been vacated. Some loans have also become defaulted due to non-payment of rescheduled installments. He explained that these factors have contributed to the increase in defaulted loans in the banking sector.

According to Bangladesh Bank, by the end of June 2024, the amount of defaulted loans in the country's banking sector was BDT 2.11 trillion, 12.56 percent of the total loans distributed by banks. On August 5 of the previous year, the government of Sheikh Hasina was overthrown in a student-led mass uprising. She fled to India after resigning as Prime Minister. After the government fell, for the first time in the country’s history, the then Governor of Bangladesh Bank, Abdur Rouf Talukder, fled. After that, the interim government appointed economist Dr. Ahsan H Mansur as the new Governor.

At yesterday's press conference, Governor Ahsan H Mansur stated, "There is no major crisis for the country's economy. There is no issue with the balance of payments or the banking sector. If the flow of deposits increases a bit, the liquidity crisis in the banking sector will ease. The deposit growth over the past one or two years has not been sufficient. Currently, deposit growth is 7-8 percent. In a healthy economy, deposit growth should be between 14-18 percent."

The Governor added, "According to BPM6, our reserves are now over 21 billion dollars. This is a fairly comfortable situation. The conditions the International Monetary Fund (IMF) set for reserve maintenance were met in September and December. We hope to meet the reserve requirements again by the end of March."

Governor Ahsan H. Mansur has repeatedly warned that the default loan rate in the banking sector could rise to 35 percent. After joining as Governor, he repeatedly stated, "The level of irregularities, corruption, and looting in the country's banking sector over the past 15 years is rare in world history. Nowhere in the world have so many banks been looted together. Groups like S Alam and Beximco have taken nearly BDT 2.5 trillion."

The warning that the default loan rate would exceed 30 percent was also hinted at in the monetary policy for the second half of the current financial year. In the monetary policy announced on February 10, the central bank said that the serious concern for the banking sector is default loans, which will exceed 30 percent. Systemic weaknesses, regulatory gaps, and crimes like money laundering and exploitative practices have been blamed for this.

After winning the 9th National Parliamentary elections, Sheikh Hasina became Prime Minister on January 6, 2009. By December 31 of that year, the amount of default loans in the banking sector was only BDT 224.82 billion. However, after Sheikh Hasina was overthrown, the default loan amount in September of the previous year rose to BDT 2.84977 trillion. Additionally, nearly BDT 640 billion worth of default loans were written off. In recent years, loans amounting to hundreds of thousands of crore taka were rescheduled and restructured without proper scrutiny to show fewer defaults. According to the IMF, one-quarter of Bangladesh's total distributed loans, more than BDT 5 trillion, were already "distressed."