Bangladesh Bank (BB) has meticulously compiled and released a comprehensive dataset of various categories of defaulted loans, aligning with the guidelines set by the International Monetary Fund (IMF). Esteemed economists have lauded this move, asserting that the report presents an authentic snapshot of the nation’s ailing domestic economy. The report not only offers transparency about the banking sector’s genuine state but also equips investors and depositors with essential insights for their future decisions.
The BB’s Financial Stability Report for the year 2022, unveiled recently, discloses that the banking sector grappled with a total of Tk 3.78 lakh crore in risky loans throughout the preceding year. This sum is calculated by combining non-performing loans (NPLs), outstanding rescheduled loans, and outstanding restructured written-off loans.
As of the close of 2022, the banking sector’s NPLs reached Tk 120,649 crore, outstanding rescheduled loans amounted to Tk 212,780 crore, and outstanding written-off loans accounted for Tk 44,493 crore. These loans, as defined by the International Monetary Fund, are categorized as non-performing loans. The publication of this report was necessitated by the IMF’s requirement, as it forms a condition for the approval of Bangladesh’s $4.7 billion loan.
To gain the IMF’s approval for the loan, Bangladesh must reduce its non-performing loans to a level of 10 percent. The IMF’s preference encompasses the rescheduling of loans and treating court-suspended loans as defaulted.
Professor Mustafizur Rahman, a Distinguished Fellow of the Centre for Policy Dialogue (CPD), emphasized the significant burden the substantial volume of non-performing loans exerts on the domestic economy. He emphasized that a substantial amount of money is immobilized in unproductive sectors, creating substantial strain. He noted that if banks received timely repayment of loan funds, they could invest more extensively in new entrepreneurs and small to medium-sized industries, which are currently grappling for funds.
Ahsan H. Mansoor, the Executive Director of the Policy Research Institute (PRI) and a former economist at the IMF, affirmed that rescheduled loans should indeed be considered defaulted loans, in accordance with the IMF’s stance. Should these rescheduled loans be treated as defaults, the default rate within the banking sector would elevate to 25 percent, a figure starkly contrasting the IMF’s recommended 10 percent threshold.
The report indicates that the rescheduled loans for 2022 amounted to Tk 63,719 crore, a sharp rise from Tk 26,810 crore in 2021 and Tk 19,810 crore in 2020. The bulk of rescheduled loans for the year 2022, around 71 percent, were attributed to private sector banks, with public sector banks contributing 24 percent.
Moreover, the BB’s report revealed that Tk 65,321 crore of debt had been written off from the financial report for 2022, surpassing the Tk 60,498 crore written off in 2021. Adding to the complexity, approximately Tk 1.0 lakh crore remains entangled in pending court cases, further exacerbating the prevailing economic challenges.
