Bad loans soar by Tk1.34 lakh crore in H2 of 2024

Infographics: TBS

Non-performing loans (NPLs) in Bangladesh soared by Tk1.34 lakh crore in the last six months of 2024, reaching a total of Tk3.45 lakh crore by December.

While presenting Bangladesh Bank's data at a press briefing on Wednesday (26 February), Governor Ahsan H Mansur said that after the fall of the Awami League government in August, previously concealed defaulted loans began to come to light.

The new figure of defaulted loans accounts for 20.2% of the banking sector's total loans, according to data released by the Bangladesh Bank on Wednesday.

NPLs stood at Tk2.11 lakh crore at the end of June 2024, accounting for 12.56% of total loans, when the previous Awami League government was still in power.

According to BB data, in December 2023, NPLs stood at Tk1.45 lakh crore, accounting for 9% of the total bank loans at that time.

According to bankers, the surge in bad loans follows the end of Sheikh Hasina's 15-year-plus rule, during which practices like "window dressing" allowed banks to conceal defaulted loan figures.

At the press briefing, the central bank governor also said the rise in NPLs is largely due to the end of a long-standing lack of transparency in reporting bad loans and recent changes in loan classification policies.

Previously, loans were classified as overdue after 270 days, but the timeframe has now been reduced to 180 days. Furthermore, starting from April 2025, loans will be classified as non-performing within just 90 days, he said.

As of December 2024, at least 42% of total loans in state-owned banks were classified as non-performing, while 15% of total loans in private banks were non-performing, said the governor, warning that with this new strict policy, NPLs are expected to rise even further in the coming months.

Early this month, the Bangladesh Bank announced its monetary policy for the January-June period of the current fiscal year. According to its monetary policy report, NPLs in the banking sector are expected to exceed 30% of total outstanding loans by June this year.

Factors contributing to the rise in NPLs include systemic weaknesses, regulatory gaps, and exploitative practices such as money laundering and illicit capital flight, the report stated.

The report also highlighted that several banks are facing a significant liquidity crisis, worsened by rising NPLs, slow deposit growth, and weak loan recovery.

The report noted that several large loans have been classified as non-performing by the Inspection Department. Furthermore, some loans have defaulted again due to the non-payment of instalments on rescheduled loans.

In the past six months, both new loan disbursement and loan renewals have decreased in banks, while the amount of defaulted loans has increased. Additionally, many loans have defaulted due to the reduction in the overdue period for term loans, the report stated.

Analysts also attribute the NPL increase to the reinstatement of international standards for defining NPLs. These stricter measures, which were suspended during the pandemic in 2020, have provided a more accurate, though sobering, assessment of the sector's financial health.

What bankers say about soaring NPLs

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, told TBS that the increase in default loans is due to several factors. One key reason is that banks previously classified loans as regular for many influential customers whose loans were actually in default. Now, those loans are being classified as defaulted again.

Some loans have become defaulted because the Bangladesh Bank has aligned its loan classification process with international standards now, he said.

"Many borrowers couldn't repay their loans due to student protests and internet outages in July and August, which also contributed to the rise in defaulted loans," he said.

Mahbubur noted that the SME sector has been severely affected, leading many customers to default. Additionally, many factories have struggled to operate properly due to insufficient gas and electricity supply. Prolonged unrest of RMG workers could be another reason.

Officials from loan departments of several banks told TBS that following the fall of the Sheikh Hasina government, the bad loans of S Alam and Beximco groups have increased. Additionally, reports of irregularities in the loans of several large groups have surfaced, with most of their loans now in default.

The managing director of a Sharia-based bank, speaking on the condition of anonymity, told TBS that the true extent of defaulted loans must be revealed to gain a complete picture. Only then can appropriate reform measures be taken.

"If the next general election is rushed, the actual NPL information may not be fully disclosed. Afterwards, the new government will likely strike deals with large defaulters and regularise these loans again," he added.