A significant portion of loans disbursed over the past decade and a half through irregularities and corruption in Bangladesh’s banking sector have not been repaid. As a result, non-performing loans (NPLs) have surged at an alarming rate across both state-owned and private banks. By December last year, NPLs in the banking sector had surpassed BDT 5 trillion. According to Bangladesh Bank sources, more than 30 percent of total loans are now classified as defaulted.

The true extent of the banking sector’s crisis became evident after the Sheikh Hasina government was ousted following the student-led uprising on August 5 last year. As of March 2024, the official NPL ratio stood at 11.11 percent, rising to 12.56 percent in June, 16.93 percent in September, and nearly doubling by December.

Officials from the central bank’s relevant department stated that banks are now finalizing their financial reports for 2024, with audit teams from Bangladesh Bank conducting inspections. Initial findings indicate that NPLs exceed BDT 5 trillion. Additionally, 12 private banks, whose boards were dissolved, are undergoing audits by international firms. Once these audits are completed, the NPL ratio could exceed 35 percent.

When asked, Bangladesh Bank spokesperson and Executive Director Arif Hossain Khan told Bonik Barta, “The central bank publishes NPL data quarterly. The December report is in its final stages and is expected to be released this week.”

On the issue of NPLs exceeding 30 percent, Arif Hossain Khan said, “Previously concealed default loans are now being identified. It wouldn’t be surprising if the NPL ratio reaches 40 percent. If the true picture of the banking sector is revealed, finding a solution will be easier.”

Earlier, Bangladesh Bank Governor Dr. Ahsan H Mansur had warned that the NPL ratio could reach 35 percent. He repeatedly emphasized that the scale of irregularities, corruption, and looting in Bangladesh’s banking sector over the past 15 years is unprecedented. “Nowhere in the world have so many banks been looted at once. Groups like S Alam and Beximco alone have taken nearly BDT 2.5 trillion,” he said.

The monetary policy for the second half of the fiscal year had already hinted at NPLs surpassing 30 percent. In the policy announced on February 10, the central bank highlighted NPLs as a major concern, attributing their rise to systemic weaknesses, regulatory failures, financial crimes, and exploitative practices.

A senior Bangladesh Bank official commented, “Business groups trusted by Sheikh Hasina, including S Alam and Beximco, have taken massive loans, most of which are now in default. Under these circumstances, reducing NPLs in the near future will be extremely challenging.”

When Sheikh Hasina assumed office as prime minister in 2009, NPLs stood at just BDT 224.82 billion. However, by September last year, the month following her removal from power, the figure had skyrocketed to over BDT 2.84 trillion. Another BDT 640 billion in NPLs was written off, while trillions of taka in loans were rescheduled or restructured to conceal the true extent of defaults. The International Monetary Fund (IMF) estimates that over a quarter of all disbursed loans in Bangladesh’s banking sector—more than BDT 5 trillion—were already in distress.

Syed Mahbubur Rahman, Managing Director of Mutual Trust Bank (MTB), said, “The governor himself acknowledged that NPLs could reach 35 percent. In reality, the figure might be even higher. The 12 banks whose boards were dissolved are still under audit. The real question is how many of their loans remain regular.”

A surge in NPLs typically leads to a downgrade in a country’s sovereign credit rating. At present, Bangladesh’s sovereign credit rating is negative. When asked how foreign lenders are responding, Syed Mahbubur Rahman said, “Foreign banks had already reduced our credit limits. We are asking them to be patient and observe our liquidity situation because banks will settle their Letters of Credit (LC) obligations with available liquidity. For now, the NPL ratio isn’t the main concern. Many countries have faced similar crises before and recovered. The key now is to prevent further crimes and misappropriation while ensuring absolute governance in the banking sector. Otherwise, recovery will be impossible.”

Mosleh Uddin Ahmed, Managing Director of Shahjalal Islami Bank, remarked, “The banking sector is in dire straits, and even foreign banks are turning away. Given the current situation, we are hesitant to issue new loans. With rising interest rates, even reputable borrowers are struggling to repay. The NPL situation will likely worsen. To stabilize the economy and banking sector, law and order must first be restored. Without the rule of law, the public will not benefit from the mass uprising.”