Loans disbursed during the tenure of the Awami League government are increasingly turning defaulted, particularly those linked to influential businessmen known to be close to the ousted regime.
At the same time, the overall economic slowdown and changes in loan classification policies have also contributed to the sharp rise in non-performing loans (NPLs). Nearly every bank, regardless of reputation, is seeing a spike in defaults.
As of the end of June, the total volume of defaulted loans stood at Tk 5.30 trillion, which is 27.09 per cent of total loans disbursed in the banking sector. It means more than a quarter of all bank loans are now classified as non-performing.
At the end of March, total defaulted loans amounted to Tk 4.20 trillion, with a default rate of 24.13 per cent, according to reports submitted by banks to Bangladesh Bank.
In June 2024, total defaulted loans were recorded at Tk 2.11 trillion, and it has now risen to Tk 5.3 trillion, with a year-on-year increase of Tk 3.19 trillion.
Bangladesh Bank officials said many loans disbursed during the Awami League tenure are now being classified as non-performing. Additionally, Bangladesh Bank has now started maintaining international standards in loan classification, which is eventually increasing default loans. Many renewed loans are not being recovered, while the central bank has classified many loans as defaults due to irregularities.
When the Awami League came to power in 2009, total defaulted loans in the banking sector was just Tk 224.81 billion. Since then, the number has increased on a regular basis.
Economists had warned that politically connected and influential individuals were withdrawing large sums from banks through irregular means, much of which was laundered abroad.
After the fall of the Awami League government in August last year, the true extent of the banking sector’s non-performing loans began to surface.
During the previous regime, influential figures were granted large loans through various irregularities, and several regulatory changes were made to understate the actual volume of defaulted loans.
With the new administration in place, the central bank has rolled back those policies.
In response to the alarming rise in bad loans, Bangladesh Bank has decided to merge five Shariah-based banks, where the average default rate is around 70 per cent.
According to sources, defaulted loans at banks formerly under the control of the controversial S Alam Group in Chattogram are now becoming visible. Among them, Islami Bank has seen the sharpest increase in bad loans. Other banks showing significant increases include First Security Islami Bank, Global Islami Bank, Union Bank, Social Islami Bank, and Exim Bank. The central bank has planned to merge all these banks.
Besides, Agrani, Janata, IFIC, UCB, NRB, and NRB Commercial banks are also witnessing rising defaulted loans.
Around 1,200 business entities have applied to Bangladesh Bank for loan restructuring under special consideration. Over a hundred of them have already been granted this facility. Given the deteriorating situation, banks are considering offering policy support to more defaulters.