Distressed assets in banking sector may have hit Tk9.5 lakh crore: PRI

Distressed assets in Bangladesh's banking sector may have now reached an estimated Tk9.5 lakh crore, raising an alarm over the country's ability to sustain credit flow, investment and economic growth, according to a new assessment by the Policy Research Institute (PRI).

He warned that high NPLs were creating a risk of a credit crunch and weakening investment sentiment. "At least 16 banks have become incapable of issuing new loans, leading to lower investment, rising unemployment, and slower development – ultimately dragging down GDP growth," he said.

He highlighted four major consequences of failing to manage high NPLs: high interest rates, high inflation, low growth, and low investment.

PRI's presentation also noted that the five recently merged banks, now United Islami Bank, account for more than one-third of all NPLs among the country's 61 banks.

In his presentation, Ashikur Rahman also highlighted how three countries – the United Kingdom, Malaysia, and China – achieved success in cleaning up their banking sectors. 

The presentation noted that Malaysia achieved the most effective outcomes, largely due to strong, professional, and transparent governance, legally empowered regulatory frameworks, and minimal political interference.

According to the government's latest data, NPLs in the banking sector stood at Tk6.44 lakh crore as of last September.

Addressing the event, PRI Chairman Dr Zaidi Sattar said although the pace of the economy has slowed, stability has been restored.

He also stressed the need for more liberal policies to boost employment.

Businesses fear more turbulence

Bangladesh Chamber of Industries (BCI) President Anwar-Ul-Alam Chowdhury Parvez said the true NPL figure was likely to increase further, blaming policy decisions for worsening the situation.

Parvez, also a former BGMEA president, pointed to a recent regulatory change that will shorten the loan rescheduling period from six months to three months starting next March, which he said would push up defaults.

Rejecting the notion that businesses alone are responsible for rising NPLs, he said, "Energy prices have been repeatedly increased with promises of better supply. That did not happen. As a result, production in gas-based industries has fallen to 40%. Is this the private sector's fault?"

Citing weak loan evaluation by banks, he added, "When a bank sanctions a loan of Tk100 crore for five years, do they not know whether the borrower will be able to repay it within that time? I [borrower] sit with bank officials and prepare the balance sheet myself."

"Yet only businesspeople are being blamed – why?" he questioned.

Amrita Makin Islam, deputy managing director of Picard Bangladesh Limited, a leading leather goods and footwear exporter, underscored Bangladesh's poor logistics performance compared to global competitors.

"Our lead time is about 90 days, whereas Vietnam and China need only 45 days. Now the industry has to review the minimum wage every three years, despite our lower productivity," she said.

'Economy is bleeding'

Parvez said bank lending to the private sector had fallen sharply as businesses borrow merely to avoid loan classification. Private-sector credit growth fell below 7% between June and August – the lowest in 22 years.

He said, "Those who are taking loans now are doing so only to repay their other bank loans, so that those loans do not become substandard."

"The economy is bleeding. Is the government listening? Unfortunately, they don't care about the business community," he added.

He further noted that this slowdown in private-sector credit, coupled with rising NPLs, poses a serious threat to the economy.

The BCI chief said the energy crisis had disrupted production since 2022, causing nearly 50% of small and cottage industries to close. "Everyone has come to Dhaka and is now driving 'Teslas' [battery-run auto-rickshaws]. The population of this city has now reached 3.5 crore," he remarked.

He also highlighted various challenges for the private sector: high external debt, high logistics charges – including at Chattogram port – weak law and order, bureaucratic delays, unstable politics, and mob violence.

Parvez warned that the National Board of Revenue's new target to collect an additional Tk55,000 crore will further squeeze the private sector.

"We fear more pressure is coming. It will come in the name of Tax Deducted at Source (TDS), increasing the cost of production," he said, questioning, "Why such a rush?"

According to him, so-called ongoing reforms at the NBR have "made the agency's situation worse than before."