Toxic loans soar to record Tk2.11 lakh crore with banking irregularities unfolding
Bankers noted that many banks had previously shown unrecovered loans as regular by offering various concessions
Defaulted loans have surged to an all-time high of Tk2.11 lakh crore at the end of June, as a lack of governance and various irregularities – such as concealing the true financial picture through window dressing – in the country's banking sector during the ousted Sheikh Hasina regime have begun to surface.
According to data from the Bangladesh Bank, toxic debt in banks rose by Tk29,096 crore in the June quarter, marking an increase of around 16% from the default amount at the end of March.
Bankers noted that many banks had previously shown unrecovered loans as regular by offering various concessions. However, the true status of these loans is now beginning to surface, leading to a rise in defaulted loans.
A senior central bank official told The Business Standard, "The actual amount of defaulted loans in banks is significantly higher than reported. Various facilities provided by the central bank or the banks themselves had kept this information concealed, but it is now starting to come to light."
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"There will be a substantial increase in defaulted loans in the September quarter, as our new governor will not permit banks to obscure their financial indicators. This will reveal the true extent of defaulted loans in the banking sector," he added.
He further noted that while the reported amount of defaulted loans has already increased significantly, the full picture of the banking sector's condition left by the previous regime is yet to emerge.
According to central bank data, as of the end of March 2024, defaulted loans amounted to just over Tk1.82 lakh crore, representing 11.11% of total loans disbursed. This marks an increase from a 9% default rate in December of the previous year.
In public sector banks, defaulted loans reached Tk84,221 crore by the end of March 2024, rising sharply to Tk1.2 lakh crore by the end of June.
Similarly, in private banks, defaulted loans stood at Tk88,900 crore at the end of March, accounting for 7.24% of total loans. By the end of June, these figures had increased to Tk99,921 crore, or 7.94% of total loans.
During this period, defaulted loans have risen across all types of banks – public, private, and specialized – except for foreign banks, where there was a slight decrease.
Specifically, foreign banks' non-performing loans were Tk3,400 crore at the end of March 2024, which slightly decreased to Tk3,229 crore by the end of June.
For specialised banks, defaulted loans were Tk5,669 crore in March, rising modestly to Tk5,756 crore by the end of June.
Due to which defaulted loans will increase
Professor Selim Raihan, executive director of the South Asian Network on Economic Modelling (Sanem), told TBS, "The situation with defaulted loans in the banking sector is worse than we anticipated. We feared that the actual defaulted loans might be double what banks were reporting, but now we're seeing even more than that."
He further noted that as more information surfaces, the true extent of the crisis will become clear in the coming days.
"We need to make drastic changes to restore confidence in the banking sector. Establishing a banking commission should be a priority. The new governor has already taken several steps in this direction ahead of the commission," he added.
A central bank official explained that borrowers have been granted extended repayment periods for nearly six years. Under the $4.7 billion loan program with the International Monetary Fund, the Bangladesh Bank is reducing the overdue period from nine months to three months for loans that have missed payments.
"The true extent of defaulted loans reported by many banks to the central bank is likely several times higher. If those loans were fully disclosed, the total defaulted loans could almost double," the official said.
Meanwhile, a report from TBS revealed that Shariah-based Social Islami Bank had concealed loans totalling Tk7,936 crore when it was under the control of the controversial S Alam Group. This information was uncovered in a Bangladesh Bank report.
According to a central bank inspection, Social Islami Bank's defaulted loans stood at Tk9,568 crore at the end of December 2023. However, the bank had reported only Tk1,644 crore to the central bank.
Another TBS report highlighted that IFIC Bank reported defaulted loans of Tk2,589 crore, or 6.28% of total disbursed loans, at the end of December 2023. A detailed central bank inspection later found that the bank's actual non-performing loans amounted to over Tk8,000 crore, or 24% of total loans.
