Toxic loans in NBFIs hit Tk24,711cr, a third of total disbursed
NBFIs’ loan interest rate made market-based
Defaulted loans in the country's non-banking financial institutions (NBFIs) rose to Tk24,711 crore, making up 33.15% of total loans of Tk74,533 crore as of June this year.
The amount was Tk23,889 crore, or 32% of the NBFI sector's total loans of Tk74,389 crore at the end of March this year, according to central bank data.
The Bangladesh Bank has now allowed NBFIs to set interest rates based on market conditions, moving away from the previous six-month average method.
The increase in default loan has been attributed to NBFIs reported loan irregularities being exposed due to regulator's stricter monitoring now. The amount is expected to go up further in the coming quarters.
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According to Bangladesh Bank's Financial Stability Report 2023, defaulted loans in NBFIs have been steadily increasing since 2019 – from 9.53% that year to 29.27% in 2023.
"The reputation of several institutions has been tarnished by various irregularities, making it difficult for them to attract deposits. As a result, new loan disbursements have decreased, and existing loans, which have been rescheduled for extended periods, are now becoming defaults," a managing director at a financial institution told The Business Standard.
"Additionally, many borrowers have been unable to repay their loans on time due to poor business performance, contributing to the rising number of defaults," he added.
According to the central bank's report, by the end of 2023, more than a dozen of the 34 financial institutions had defaulted loans exceeding 30%. Some institutions had between 50% and 90% of their loans classified as non-performing.
High non-performing loans (NPLs) had a significant negative impact on the overall profitability of NBFIs as of December 2023, resulting in an overall negative profit before taxes for the industry.
During the review year, the financial institution sector as a whole incurred a loss of Tk1,284 crore, which is Tk400 crore more than the previous year. Moreover, other operating income decreased by 13.37% during this period.
By the end of December 2023, net profit after tax had declined further compared to the same period in 2022, indicating a challenging situation for the sector.
