Businesses call for urgent policy action amid soaring NPLs, interest rates

Rising interest rates and an alarming surge in non-performing loans (NPLs) have pushed Bangladesh's banking sector to a critical tipping point, speakers warned at a seminar on Saturday.

The event drew a sharp focus on the dual pressures of financial instability and limited credit access, particularly for manufacturers and SMEs already reeling from macroeconomic stress.

The Dhaka Chamber of Commerce and Industry (DCCI) organised the seminar titled "Current Challenges in the Banking Sector: Borrowers' Prospect" at the DCCI auditorium in the capital.

Economists, central bank officials, and private sector leaders emphasised the need for borrower-friendly, coordinated reforms to restore credibility in the financial system and fuel economic recovery.

While the central bank representatives defended market-based interest rates and tight monetary policies to control inflation, business leaders painted a grimmer picture of eroding confidence, stagnant credit flows, and growing pressure on corporate balance sheets.

Speakers also argued for innovative approaches beyond conventional punitive actions, such as interest subsidies, fintech-driven disbursement tools, and rehabilitation-based models to distinguish genuine defaulters from willful ones.

The call for action comes as default loans hit Tk 4.2 trillion, accounting for over 24 per cent of all outstanding loans, according to the DCCI, a trend they fear could cripple investment and growth if left unchecked.

A few of the speakers, however, argued that financially sound banks with adequate liquidity could still offer lower rates to borrowers.

Dr Anisuzzaman Chowdhury, special assistant to the Chief Adviser at the Economic Relations Division, attended the event as chief guest. Dr Md Ejazul Islam, executive director of Bangladesh Bank's Monetary Policy Department, was present as special guest. Md Ashraf Ahmed, former DCCI president, presented the keynote address.

Dr Anisuzzaman Chowdhury stated that banks with sufficient liquidity and strong governance are capable of offering competitive interest rates, despite a generally tight monetary environment.

He emphasised the need to focus on social business models that balance profitability with responsibility. "We must move beyond profit maximisation alone if we want a  resilient, inclusive banking sector," he added.

Mr Chowdhury questioned whether international financial institutions should bear some responsibility for the corruption and economic mismanagement that plagued Bangladesh over the past 15 years.

He pointed out that institutions such as the International Monetary Fund (IMF), the World Bank, and the Asian Development Bank (ADB) had long praised Bangladesh's economic performance and policies under the previous government.

However, following the 'July Revolution', he noted, these same institutions have returned with a new set of policy prescriptions and recommendations.

He criticised the IMF and the World Bank for continuing to disburse loans during a period marked by alleged large-scale corruption, without raising concerns about the governance environment or the misuse of public funds.

"Should the IMF and the ADB not share responsibility for providing financial lifelines to a government under which massive corruption took place?" he asked.

"As an economist, I can say with full confidence that the crisis could not have continued indefinitely. It was a blessing from Allah that the student movement saved the country - not just politically, but economically as well."

Mr Chowdhury also criticised the IMF loan deal secured by the previous administration, describing it as having effectively sent the economy into the intensive care unit (ICU).

"Tell me, how many people actually survive after going to the ICU?" he asked rhetorically. "Those who send patients to the ICU know survival is rare. We would not have been able to recover from it."

DCCI President Taskeen Ahmed painted a sobering picture of the sector's current vulnerabilities. "Bangladesh's banking sector stands at a critical juncture, with default loans posing significant risks to financial stability and investment," he said.

As access to credit becomes more difficult, especially for the SMEs and manufacturing sectors, he warned that the consequences could ripple throughout the broader economy.

"Non-performing loans now stand at Tk 4.2 trillion, accounting for over 24 per cent of total outstanding loans," Mr Ahmed noted. "Poor governance, weak recovery mechanisms, and flawed risk assessments are eroding confidence in the banking system."

He urged a shift from punitive measures to rehabilitation-based models that can restore borrower credibility and accelerate economic recovery.

Bangladesh Bank's Dr Ejazul Islam explained that the central bank has adopted a tight monetary policy aimed at curbing inflation and maintaining macroeconomic stability.

Interest rates, he noted, are now market-based, and banks with stronger liquidity positions have room to offer lower lending rates.

He also acknowledged a growing concern: "The spread between deposit and lending rates has widened in recent months, which indicates that banks are now generating higher profits. While this may strengthen balance sheets, it also raises questions about affordability for borrowers."

Dr Islam added that the central bank continues to provide liquidity support to banks when needed.

In response to the mounting challenges, the DCCI proposed several key reform measures. These include the introduction of interest subsidies and partial credit guarantees to reduce lending risk, as well as promotion of fintech-based loan disbursement systems to improve efficiency and transparency.

The chamber also called for a six-month extension in the current loan classification timeline to provide breathing space to struggling borrowers.

It further recommended distinguishing between willful and unintentional defaulters to ensure that genuine businesses are not penalised unfairly.

In his keynote, Mr Ashraf Ahmed described the situation as "an anatomy of a corporate balance sheet crisis," citing the sharp depreciation of the taka, unrealised foreign exchange losses, inflation, and persistent policy uncertainty as key stressors on the business environment.

Mr Ahmed also pointed to the ongoing energy crisis as a significant disruptor of industrial growth, which in turn is deepening the financial strain on borrowers.

"With power shortages and input cost volatility, many businesses are being pushed into unmanageable financial territory," he said.

jasimharoon@yahoo.com