NPLs rise Tk36,662cr in March quarter, budget has no measure

The country's banking sector experienced a steep rise in non-performing loans (NPLs) of Tk36,662 crore in just three months from January to March, accounting for 11% of total loans.

The Bangladesh Bank released the latest figures today, coinciding with Finance Minister Abul Hassan Mahmood Ali's proposal for the new budget for FY25 raising concerns about non-performing loans and lack of financial discipline in the banking sector.

At the end of March, the total default loan stood at Tk1,82,295 crore, marking the highest in the country's banking sector history.

According to Bangladesh Bank data, the banking sector had Tk1,45,633 crore in default loans at the end of December last year, accounting for 9% of total loans.

"To restore discipline, painful restructuring, such as mergers, may need to be completed for some banks," said the finance minister while presenting the new budget.

The minister mentioned the government's special emphasis on increasing efficiency and capacity in financial sectors, including banking, in this year's election manifesto.

However, the commitment in the election manifesto is not reflected in the new budget which is the first budget after the ruling party formed the government for the fourth time.

The finance minister did not provide a roadmap for restoring discipline or ensuring good governance to reduce NPLs in the new budget.

Former Bangladesh Bank governor Mohammed Farashuddin said although a roadmap was formulated to reduce default loans of state-owned banks to 10% of total disbursement by 2026 in line with the IMF's conditions set in January 2023, it increased to 27.42% within a year due to frequent rescheduling of classified loans at banks.

Latest NPL scenario

Bankers said one of the reasons for increase in non-performing loans in the banking sector in the March quarter is that state-owned banks were unable to collect loans from certain customers for a long time and categorised them as defaulted.

Md Mezbaul Haque, spokesperson for the Bangladesh Bank, said non-performing loans have also increased due to accrued interests.

According to central bank data, defaulted loans in public banks rose from Tk65,781 crore in December to Tk84,221 crore in March.

Sonali Bank's defaulted loans increased to Tk14,988 crore, Janata Bank's to Tk30,495 crore, Rupali Bank's to Tk10,357 crore, and Agrani Bank's to Tk20,864 crore.

Additionally, the defaulted loans of public sector Basic Bank increased to Tk8,297 crore, and those of Bangladesh Development Bank rose to Tk873 crore.

In December last year, 20.99% of loans disbursed by public sector banks were in default, a figure that increased to 27% by March.

Chairman of Janata Bank, SM Mahfuzur Rahman, told TBS, "Despite our prolonged efforts, many loans disbursed a long ago remain unrecovered, resulting in defaults."

Former Bangladesh Bank governor Dr Mohammed Farashuddin said, "Had all loans exceeding Tk1 crore been covered by insurance, the increase in bad loans could have been mitigated. This would also diminish the credit risk for banks."

Non-performing loans of private banks increased by Tk17,918 crore to Tk88,900 crore, accounting for 7.28% of total loans in the March quarter of 2024. However, their NPL ratio was 5.93% in the previous December quarter.

Non-performing loans of foreign banks rose to Tk3,452 crore in March this year, compared to Tk3,200 crore in the previous quarter in December.

Additionally, defaulted loans of three specialised banks increased to Tk5,700 crore at the end of March 2024, up from Tk5,670 crore in the previous quarter in December.

According to the Centre for Policy Dialogue (CPD), the actual amount of defaulted loans in the country's banks is several times higher than what is reported.