Classified bank loans balloon fast to a record high

Classified loans in Bangladesh's banking industry made a quantum leap by around Tk 750 billion in just three months to a record high as of March, stoking concerns across the sector.

With such leaps in the volume of non-performing loans (NPLs), the aggregate hit Tk 4.20 trillion by the end of March 2025, accounting for 24.13 per cent of the entire loans worth Tk 17.42 trillion disbursed by the country's 61 commercial banks.

Constrained by such a record volume of dud money, banks have become extremely conservative and limit their credit supply to the borrowers. Besides, banks' profitability is also dented as they have to maintain a portion of funds for NPL provisioning.

The country's central bank, Bangladesh Bank (BB), predicts that the rising trend in NPLs would continue in the coming quarters as it revised overdue-status-counting system for term lending to a curtailed tenure of six months from previous nine months.

According to the central bankers, this counting arithmetic will be revised further from March 31, 2025 onwards when such loans will be classified within three months instead of the current six months.

According to the data, the share of classified loans rose to 24.13 per cent of the total outstanding loans during the period under review from 11.11 per cent a year before.

Classified loans include substandard, doubtful and bad/loss of total outstanding credits. Of the classified loans, the share of bad loans was 81.38 per cent or Tk 3.41 trillion.

In terms of the category of banks, the ratio of classified loans in the state-owned commercial banks (SoCBs), like on other occasions, remained high.

During the period, the total amount of NPLs with six state-owned SoCBs rose to Tk 1.64 trillion or 45.79 per cent.

On the other hand, the total amount of classified loans with 43 private commercial banks (PCBs) reached Tk 2.64 trillion or 20.16 per cent until March last.

The NPLs of nine foreign commercial banks (FCBs), on the other hand, rose to Tk 32.38 billion or 4.83 per cent during the period under review.

The classified loans with three specialised banks (SBs), however, rose to Tk 64.94 billion (14.47 per cent) by end of March last from 64.32 billion in Q4 of 2024.

Such faster NPL buildup in banks caused serious concerns to bankers who fear further pressure on their liquidity situation in the months ahead. Managing Director and CEO of City Bank Mashrur Arefin says the rise in the volume of NPLs was expected as a "vicious circle took control of some of the banks and laundered public money from banking system" during the previous regime.

Also were there lots of business accounts opened in the last 15 years by people blessed by the then ruling government. But, after the changeover in state power following the July-August mass uprising, those business accounts went into hibernation in terms of sales turnover or cash-flow generation, which also contributed to the significant rise in the NPLs.

"Moreover, the compliance with international standards of classified- loan recognition as of 31st March played a significant role," he further notes about the reasons why such a spurt in non-performing loans.

Mr Mashrur, also ABB Vice Chairman, feels that the banks here need to understand that it is a business of high credit risk, including the investment risk in capital market. "So, right Credit Risk Management (CRM) framework and Board Risk Management Committee (BRMC) are a must to have."

Managing director and chief executive officer of Mutual Trust Bank (MTB) Syed Mahbubur Rahman says the real picture of NPL in banks started getting exposed in the changed context now.

He feels the volume of dud loans could increase further in the months ahead following implementation of a new classified-loan-counting system.

Apart from steps to ensure governance, the experienced banker suggests that the business-hurting external factors need to be in favour to ensure smooth business operations.

"We need to be more careful in future," he says in an alert note over the rapidly-changing global scenarios affecting trade and business.

Managing director and CEO of the country's largest state-owned lender, Sonali Bank, Md. Shawkat Ali Khan says they have intensified their cash-recovery drive which is a top priority to cut down the burden of NPL significantly.

"And people will see its results in the coming quarters. We want to convert the non-performing loans to performing assets and lend it to CMSMEs. It's our target now--and we'll do it anyhow," he told The Financial Express Sunday.

Currently, Sonali bank has 19-percent NPL, the lowest among the state-owned commercial banks.

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