Distressed bank assets equivalent to constructing 14 metro systems, 24 Padma Bridges

Politically influenced lending practices deepened the banking sector crisis, with distressed assets (as of June 2024) equivalent to the cost of constructing 14 Dhaka Metro systems or 24 Padma Bridges, the White Paper Committee on Bangladesh's economy found. 

It said the banking sector was the most corruption-ravaged sector, followed by physical infrastructure, and energy and power.

It also said persistent loan defaults and high-profile scams had eroded financial stability and diverted capital away from productive sectors.

On the severity of distress, it said the unseen was over three times the seen. 

"The window-dressed part of the NPLs are the loans rescheduled or restructured, because they turned bad in the past, and the amounts written off because they have been on the balance sheet as Bad Loans for too long," it said. 

Distressed assets are assets that are experiencing financial or operational difficulties and are sold at a discount to their actual value. In the banking sector, distressed assets can include: written-off loans, non-performing loans, and outstanding rescheduled loans.

Depth of blackhole

The draft said the depth of the banking blackhole exceeded Tk 6,75,000 crores at the end of FY24, which was equivalent to 13.5 Dhaka Metro systems and 22.5 Padma bridges. 

"The fragmented regulatory system provided multiple avenues for wrongdoing. The banking system is inadequately provisioned to withstand such excruciating stress," it said. 

The draft said the distress was even larger when the bad loans of the non-bank financial institutions (NBFIs) are accounted for. 

What led to this state

The draft said this deep hole the sector had found itself in was due to "idiosyncratic factors" or a few bad apples. 

"The culprits within the banking system are all heavy weights. The big ones coincide with the bad ones," it said. 

It said the fastest growing manufacturing sector accounted for 49% of the loans extended and 55% of NPLs. 

"Such disproportionalities are particularly notable in cases of RMG, textiles, ship building and ship breaking. There is a significant overlap between the concentration of loans, the propensity to default, and the bank types (ownership, generation). 

"Capture by dominant business interests disabled the safeguards in the system leading to the dire state it is currently in. Operational and

allocational inefficiencies have hurt growth and inclusion by excluding innovations and startups by entrepreneurs without tradable collaterals. The use of forbearance and directives in diverse forms created rents for lawyers, accountants, auditors, and regulatory supervisors."

'Most corrupt'

The hallmark of the economic legacy left to the current government had been wide-ranging and deep-rooted manifestations of corruption, particularly concerning the management of public resources, the draft of the White Paper on State of the Bangladesh Economy has said.

It said the banking sector was the most corruption-ravaged sector, followed by physical infrastructure, and energy and power.