During the Awami League government, which lost power following a student-led mass uprising, several banks were taken over and large sums of money were siphoned out.
In addition, money was withdrawn in the name of anonymous loans, flouting rules in many public and private banks. While it was the responsibility of the Bangladesh Bank to take action, it facilitated this looting instead.
In many cases, information about large amounts of defaulted loans was kept hidden, and there was insufficient collateral backing these loans.
After the change of government, the true scale of the bad loans has started to come to light. According to Bangladesh Bank data, the non-performing loans of Islami Banks, which have since changed ownership, have more than doubled.
Close associates of the Awami League, such as the industrial groups Beximco, S Alam, and Bashundhara Group, have also defaulted on their loans. As a result, the total amount of defaulted loans increased by Tk 735.86 billion during the July to September period.
By the end of September, defaulted loans had risen to Tk 2.84 trillion (Tk 284,977 crore precisely), accounting for 16.93 per cent of the total loans in the banking sector.
During this period, while defaulted loans in government banks increased by Tk 236.28 billion, the rise in defaulted loans in private banks was even more significant—Tk 498.85 billion.
Selim RF Hussain, the chairman and managing director of BRAC Bank, and a member of the Association of Bankers, Bangladesh (ABB), which represents the top executives of banks, spoke to Prothom Alo about the issue.
He said, “For a long time, information about defaulted loans was concealed, and the damage that was done was hidden. In 2019, a strange policy was implemented to show reduced defaulted loans. The audits conducted by Bangladesh Bank and local institutions did not reveal the true picture. If international standards were followed, the real situation would have come to light.”
RF Hussain also noted, “Initiatives have been taken to audit weak banks with the help of the World Bank. However, each bank should conduct such audits on its own initiative. This will expose the real situation. Afterward, appropriate measures and initiatives should be taken based on the findings.”
Defaulted loans increased
According to Bangladesh Bank records, by the end of 2023, the defaulted loans in the banking sector had reached Tk 1.45 trillion (Tk 145,633 crore). By the end of June 2023, this figure had increased to Tk 2.11 trillion (Tk 211,391 crore), which accounted for 12.56 per cent of the total loans disbursed by the country’s banks.
By the end of September 2023, the defaulted loans had surged to nearly Tk 3 trillion. In comparison, when the Awami League government came to power in 2009, the total amount of defaulted loans was Tk 224.81 billion.
Bankers say the actual amount of defaulted loans is likely much higher. Recently, Bangladesh Bank Governor Ahsan H Mansoor gave an interview to the British Financial Times, in which he discussed the looting of USD 1.67 billion by individuals associated with the Awami League.
As a result, defaulted loans are expected to increase even further. Prior to this, the central bank had employed various strategies to hide information about defaulted loans and artificially reduce their figures on paper.
It is only after the new government took office that real data on defaulted loans has started to emerge, following an order to present accurate figures.
During the Awami League’s tenure, Bangladesh received a loan of USD 4.7 billion from the International Monetary Fund (IMF), one of the conditions of which was to reduce non-performing loans in the banking sector to 10 per cent by 2024. However, the opposite has occurred.
Who has larger defaulted loans?
Private banks have played a larger role than government banks in the increase of defaulted loans during the three months discussed. In March, the defaulted loans of public sector banks—Sonali, Agrani, Janata, Rupali, Basic, and Bangladesh Development Bank—stood at Tk 842.21 billion.
This figure increased to Tk 1.02 trillion (Tk 102,483 crore) by June, and further rose to Tk 1.26 trillion (Tk 126,111 crore) by September. Notably, half of this defaulted loan amount is attributed to Janata Bank.
The Beximco Group, Anontex Group, and S Alam Group have defaulted on their loans, with Beximco Group Vice Chairman Salman F. Rahman and S Alam Group Chairman Saiful Alam both being close businessmen of former Prime Minister Sheikh Hasina. The default rate of government banks now stands at 40.35 per cent.
Meanwhile, the defaulted loans of private banks were Tk 889 billion in March, rising to Tk 999.21 billion by June. By September, this amount had surged to Tk 1.49 trillion. Deregulated banks under the S Alam Group have played a significant role in this increase.
For example, Islami Bank’s non-performing loans were Tk 77.24 billion in June, which grew to Tk 177.51 billion by the end of September. Similarly, defaulted loans have increased at First Security, National, Global Islami, Union, and Social Islami banks. Loans from Bashundhara Group have also defaulted. The default rate of private sector banks is now 11.88 per cent.
Anis A Khan, the former chairman of the Association of Bankers, Bangladesh (ABB), spoke to Prothom Alo about the reasons behind the rise in defaulted loans: “The S Alam Group has withdrawn most of the deposits from seven banks in the group anonymously. These loans are now defaulting. Additionally, many traders, including those dealing in daily essentials, have fled, and their loans are also defaulting.”
Anis A Khan further emphasised, “Those who deliberately default on their loans should be given exemplary punishment, which will send a strong message to others.”
How info on defaulted loans was concealed
Over the past 15 years, various loan defaulters and influential business figures have been repeatedly exempted by the government. On one hand, the law has been relaxed to extend more loans to special clients, and on the other, it has been relaxed to benefit defaulters. After coming to power in 2009, the government eased the definition of defaulted loans.
In 2015, a loan restructuring facility was introduced following a loan application from Salman F Rahman.
Special concessions have also been provided for loan waivers. In 2019, a special facility was introduced allowing defaulters to regularise their loans by paying just 2 per cent of the outstanding amount.
Following the Covid-19 outbreak, the central bank offered exemptions for loan defaults across all sectors. As a result, even some responsible borrowers became reluctant to repay their loan instalments.
Former governor Abdur Rauf Talukder, upon joining the central bank, issued new policies providing further relief to defaulters. These policies allowed defaulters to regularise their loans by depositing 2.5 per cent to 6.5 per cent of the outstanding amount.
Previously, defaulters were required to repay 10 per cent to 30 per cent of their debt to regularise the loans. Additionally, under the new rules, defaulters were allowed to repay their loans over five to eight years, whereas before, they had only two years to settle their debts.
These changes have increased the opportunity to conceal defaulted loans. Furthermore, loans from banks owned by influential individuals, which were not classified as defaulted for a long time, are now being added to the defaulted loans ledger.