Helping banking sector stand on its feet

Disbursement of loans bending rules to businesses enjoying political favour during the previous regime had been behind stiff rise in non-performing loans (NPLs) or bad debts in the banking sector. Though substantial amounts of funds were thus siphoned from the banks using fictitious names of borrowers and relaxing banking rules for the purpose, those were shown as regular. Now, the amounts so robbed have added to the existing NPLs. However, the exact amount of those NPLs could not be known during the previous regime due to massive data manipulation and under-reporting by the Bangladesh Bank (BB) authority of that time as well as the management of those looted banks for obvious reasons.

Now that the present BB authority is transparent about figures and has started using international standards in counting defaulted loans, the total NPLs figures, unsurprisingly, have registered a sharp rise. To be more specific, now loans are being classified as NPLs three months (the grace period) after those become overdue, whereas, earlier, the grace period was six months. As the September data of the BB showed, the NPLs have surged to a staggering sum of Tk2.85 trillion. Notably, this is a rise by about 96 per cent recorded on September30, 2024 over what it was at the end of December 2023 at Tk1.55 trillion.

Obviously, observers including experts have expressed grave concern about this alarming rise in default loans warning of its deleterious impact not only on the banking sector, but also on the entire economy. Evidently, the situation calls for carrying out a comprehensive audit of all the loans advanced so far by both the state-owned and private commercial banks to uncover the exact amount of NPLs and losses sustained by the banking sector.  Also, efforts should be on to find out those who benefited from the defaulting loans and bring them to justice. If necessary, arrangements may be made to hire reputed international firms to perform the audit to assess the exact position of the NPLs and the losses thus suffered by the banks.

At the same time, to recover the losses, legal measures should be taken to confiscate property of the fraudulent bank defaulters. However, while taking such penal measures against wilful loan defaulters, care should be taken not to punish genuine businesses who failed to repay their loans in time due to the losses made during the floods followed by political upheaval and other issues born of various uncertainties including high inflation. Since a significant portion of this defaulted loan money has been taken outside the country through laundering, to retrieve those lost bank assets from foreign lands, the government should seek cooperation of the governments of the destination countries. In this regard, the chief adviser of the incumbent interim government, Dr Muhammad Yunus, might well use his enormous goodwill and influence at the international level to bring back the money lying in foreign banks and offshore accounts.

The good news is that multilateral lending agencies and financiers like the International Monetary Fund (IMF), the World Bank (WB) and the governments of the USA and the UK have already given word to help Bangladesh recover its money thus stolen and taken illegally abroad by fraudulent businesses and loan defaulters. Hopefully, with the reputed financial experts running the affairs, the interim government should be able to bring down NPLs to a tolerable level and recover a substantial portion of losses the banking sector incurred even within the limited time it has in its hands.