NBFIs see Tk1,000cr reduction in default loans during Oct-Dec

Default loans in the non-bank financial institutions (NBFIs) saw a remarkable reduction of Tk1,000 crore during the September-December period of last year, representing a stark contrast to banks, which witnessed a staggering surge of Tk60,000 crore in such loans during the period.

According to Bangladesh Bank data, defaulted loans in NBFIs stood at Tk25,089 crore at the end of December 2024, down from Tk26,163 crore in September. 

This brought the ratio of non-performing loans (NPLs) in the sector down to 33.25% of total disbursed loans, data shows. 

Bangladesh Bank Executive Director and spokesperson Arif Hossain Khan confirmed the figures and added, "Not all financial institutions are in trouble. Some are performing quite well with rising recovery rates." 

However, he acknowledged that 33.25% of NBFI loans being in default is a serious concern and said the sector needs restructuring.

"We are now prioritising reforms through the Bank Resolution Act. Similar reforms will also be extended to non-bank financial institutions," he added.

Meanwhile, despite the improvement, NBFI defaults were still higher than the previous year, when the figure was Tk21,567 crore or 29.27% of total loans at the end of December 2023.

As of December 2024, total outstanding loans in the NBFI sector was Tk75,450 crore. 

In contrast, the banking sector saw a massive increase in defaults during the same period, with defaulted loans climbing to Tk3,45,765 crore (20.2% of total loans) compared to Tk2,84,977 crore in September. This marks Tk60,787 crore rise in just three months.

Officials from several NBFIs said recoveries and rescheduling tend to improve in the December quarter as institutions prepare their year-end balance sheets. 

Besides, they said some firms have strengthened internal management and recovery operations, contributing to the quarterly drop in defaults.

However, experts caution that while a reduction of Tk1,000 crore is notable, the NBFI sector still has over a third of its loans classified as non-performing. 

To bring this down, stronger enforcement, greater transparency, and stricter accountability in financial institution governance are essential, they said.

The effect of high-profile financial scandals continues to weigh on the sector. Several institutions previously managed by Prashanta Kumar (PK) Halder – now a fugitive accused of embezzling thousands of crores – continue to report the highest default rates.

Md Kyser Hamid, managing director and CEO of Bangladesh Finance, told The Business Standard that much of the misconduct in the NBFI sector had already come to light between 2018 and 2020. 

"Unlike banks, where irregularities remained hidden longer, NBFIs had already revealed their weaknesses. As banks are now being scrutinised, more defaults are surfacing," he said.

He added that some NBFIs have made significant progress in loan recovery, contributing to the overall sector's improved numbers. 

"Our default rate has come down from 11% to 9%. We are focusing more on SME and microloans instead of taking large loan exposures in 2024," said Kyser.