Rising NPLs eroding borrower confidence, tightening credit environment: DCCI

Highlights:

• DCCI proposes interest subsidies, partial credit guarantees
• Suggests fintech-based loan disbursements
• Recommends sector-specific lending windows
• Seeks relaxed loan classification timelines
• Urges structured repayment schemes for struggling borrowers
• Calls to differentiate unintentional defaulters from wilful ones

The Dhaka Chamber of Commerce and Industry (DCCI) has called for borrower-friendly reforms and coordinated policy action to stabilise Bangladesh's financial sector, warning that the surge in non-performing loans (NPLs) has severely weakened business confidence and tightened credit access, particularly for SMEs.

Speaking at a seminar titled "Current Challenges in the Banking Sector: Borrowers' Prospect", DCCI President Taskeen Ahmed said the banking system is under significant stress due to mounting NPLs, prolonged inflation, and sluggish credit growth.

"Non-performing loans now stand at Tk4.2 lakh crore, accounting for over 24% of total outstanding loans," he said, blaming weak governance, flawed risk assessments, and poor recovery mechanisms for the crisis. "This erosion of trust is creating a credit crunch for productive sectors."

"This tight credit environment is choking SMEs and other productive sectors. We must move beyond punitive measures and adopt rehabilitation-based models," he said, adding that punitive actions must give way to rehabilitation-focused approaches. 

Among the DCCI's proposed reforms were interest subsidies, partial credit guarantees, fintech-based disbursements, and sector-specific lending windows. It also recommended relaxing loan classification timelines, introducing structured repayment schemes, and identifying unintentional defaulters separately from wilful ones.

Taskeen warned that without fiscal and monetary coordination, investment, innovation, and long-term growth could stall.

Energy, import constraints

Former DCCI president Ashraf Ahmad, in his keynote, characterised the current scenario as a "corporate balance sheet crisis". He said foreign exchange volatility, policy uncertainty, and inflation have intensified pressure on businesses. 

He cited that private sector foreign currency loans rose from Tk2,143 billion in FY22 to Tk3,233 billion, incurring unrealised losses of over Tk1.09 trillion due to taka depreciation. Realised foreign exchange losses now total Tk588 billion, fuelled by costlier imports, services, and debt servicing.

Ashraf also highlighted the energy crisis and import restrictions as major constraints on industrial output. While projected gas demand in FY24 was 4,931mmcfd, actual supply dropped to 2,501mmcfd, causing an estimated 50% decline in potential industrial growth. Import controls like the 100% LC margin have further squeezed raw material sourcing, hurting production and competitiveness.

'Borrowers, lenders must act responsibly'

Anisuzzaman Chowdhury, special assistant to the chief adviser at the finance ministry, stressed the importance of policy integration. "Both borrowers and lenders must act responsibly. Protecting the formal sector is vital, or informal sector development will also falter," he said.

He noted that healthy banks could provide interest rate relief to SMEs even in the current scenario and called for stronger coordination between fiscal and monetary policies.

Md Ezazul Islam, executive director at Bangladesh Bank, acknowledged that post-2015, some banks fell under familial control, leading to opacity and instability. He said political change and central bank interventions have begun to restore confidence, especially by stabilising reserves and floating the exchange rate.

He admitted that the previous interest rate cap was a mistake and said future rates should be market-determined. He urged banks to consider social impact and support SMEs.

Abdul Hai Sarker, chairman of the Bangladesh Association of Banks, blamed weak policy and legal bottlenecks for slow NPL recovery. He called for more financial courts to expedite loan default cases.

Fazle Shamim Ehsan, executive president of BKMEA, said compliant borrowers often face discrimination, and banks hesitate to extend credit due to high exchange rates and poor central bank relations.

Mati Ul Hasan, managing director of Mercantile Bank, proposed forming public-private asset management companies to help banks recover bad loans and ease their balance sheets.

Sohana Rouf Chowdhury, managing director of Rangs Motors, said businesses are struggling to survive due to policy instability and high lending rates, particularly in the manufacturing sector.