Bangladesh non-performing loans have increased to EUR 226bln, revealing the true picture

1 crore = 10 mln. – BDT 126 = 1 EUR

At the end of September 2024, the amount of non-performing loans (NPLs) in the Bangladesh’s banks increased to 2,84,977 crore taka or EUR 226.17 bln. In just three months, the NPLs in the banking system rose by 73,586 crore taka. During the tenure of the Awami League government, which lost power due to an uprising by students and the public, a significant amount of money was siphoned off from banks, both in the form of named and unnamed transactions. This money is now beginning to be identified as non-performing loans. As a result, nearly 17% of the loans distributed by banks have now turned into NPLs.

According to data from Bangladesh Bank, the central bank of Bangladesh, at the end of June, non-performing loans stood at 2,11,391 crore taka. At that time, 12.56% of the loans distributed by the country’s banks were non-performing. When the Awami League formed the government in 2009, the total amount of non-performing loans was 22,481 crore taka. Since then, the amount of NPLs has been continuously increasing. Economists have long been complaining that under the protection of the then government, a massive amount of money was looted from the banks, with a large portion being siphoned off abroad.

For the first time since the fall of the government on August 5, data on non-performing loans (NPLs) has been made available, revealing the true picture of NPLs. During the previous government’s tenure, various privileges were granted to influential individuals in order to provide large loans from banks. At the same time, a series of policies were implemented to artificially reduce the reported amount of non-performing loans on paper. After the change in government, the central bank has moved away from these policies.

According to data from Bangladesh Bank, from June to September – within these three months – the private banks played a larger role than the state-owned banks in increasing non-performing loans. During this period, non-performing loans in state-owned banks increased by 23,628 crore taka. In contrast, non-performing loans in private banks rose by 49,885 crore taka.

In particular, banks that were previously under the control of the controversial S Alam Group have begun to show the true extent of their loan defaults. Among these, the non-performing loans at Islami Bank have doubled. Similarly, non-performing loans at First Security Islami Bank, Global Islami Bank, Union Bank, and Social Islami Bank have also increased significantly. Additionally, major business conglomerates, including Beximco Group (owned by former Prime Minister Sheikh Hasina’s advisor Salman F. Rahman), Bashundhara Group, S Alam Group, and others, have fallen into loan default. This has further contributed to the rise in non-performing loans.

Banking sector insiders, however, believe the actual amount of non-performing loans is even higher. This is because loans that were written off or those suspended by court orders were not included in the central bank’s NPL figures. Since the change in government, Bangladesh Bank has started taking steps to reform the banking sector. As a result, senior officials at the central bank believe that the true extent of non-performing loans will become clearer in the coming days.

Looming Financing Risks

Sustained delays in industrial production and trade finance are unavoidable at such high level of non-performing loans in the banking sector as the default loan outpace recovery rate. It is evident by official announcement of the then country’s honourable finance minister in the parliament by numbering more than 300,000 loan defaulters in Bangladesh. He further stressed that the country’s central bank’s relaxed policies on loan classifications, helping reduce default loans.

In early 2019 the then finance minister of Bangladesh reported 266,118 loan defaulter in the country as of December 2018, with a top 20 loan defaulters list. A High Court order, however, prevented names of some defaulters from being published, noted the finance minister in his speech at the parliament.

During the previous government’s tenure, it was not possible to report the actual numbers. At the same time, a series of policies were implemented to artificially reduce the reported amount of non-performing loans on paper. After the change in government, the central bank has moved away from these policies.

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Written by

Mr. Kauser BHUIYAN is a German educated Economist, former EU diplomat and Wall-Street professional who gained more than two decades of professional experience at Accenture, Bloomberg, European Commission and Stein & Partners. He learned professional skills in the areas of Change Management Consulting, International Financial Market, Economic Co-operation and Sustainability Advisory services in Frankfurt, Zurich, London, New York, Brussels, Islamabad, Dhaka and Bangkok. He re-visits Dhaka as one of the fastest growing and vibrant economies in the region, which he believes to have genuine potentials for attracting Foreign Direct Investments (FDI), depending on Bangladesh’s representation, communication and negotiation capabilities with it’s international economic and development partners, including the European Union (EU). He provides with Advisory and Change Management services to diplomatic missions, international organisations, donor funded programmes and international companies with business interests in Bangladesh. Mr. Bhuiyan may be reached at ask [at] steinandpartners.net