Bangladesh ranks second highest in loan default in South Asia
While the rate of loan default in various countries of South Asia is on the decline, in Bangladesh this is on the rise. Sri Lanka, facing an economic crisis, has a higher rate of loan default than Bangladesh. But this rate is lower in the other countries of the region. Even Pakistan has a lower rate of default loans than Bangladesh. Bangladesh ranks second highest in default loans in South Asia.
Bangladesh on Sunday published the updated figures on defaulted loans. This stated that the volume of defaulted loans in the country had crossed Tk 1,500 billion (Tk 1,50,000 crore) taka. At the end of June, default loans stood at Tk 1560.39 billion (Tk 1 lakh 56 thousand 39 crore), which is a Tk 244.19 billion (Tk 24,419 crore) increase from April-June.
The loan default rate in Bangladesh is now 10.11 per cent of the total loans. This rate in Sri Lanka, facing an economic crisis, is 13.33 per cent. In Pakistan this is 7.4 per cent.
The rate of defaulted loans in India is low. In the first quarter of this year (January-March) India's loan default rate came down to 3.9 per cent. The country's central bank, Reserve Bank of India (RBI), predicts this will fall to 3.6 per cent next year.
Centre for Policy Dialogue (CPD)'s distinguished fellow Mustafizur Rahman, speaking to Prothom Alo, said many countries including India have managed to rein in default loans. They have managed to do this by strictly enforcing the bankruptcy law and also through monitoring by the central bank and other institutions. In Bangladesh too, the institutions must be strengthened in order to rein in defaulted loans.
The World Bank publishes an account of the default loans of various countries on its website. This reveals that Bangladesh's default loans are on a steady rise. In 2013 Bangladesh default loan rate was 4.8 per cent. The next year, that is, 2014, it jumped up to 9.4 per cent.
According to the World Bank figures, in 2018 Bangladesh's default loan rate went near 10 per cent. It decreased somewhat after that. According to Bangladesh bank records, default loans have gone up again.
The World Bank website carries the picture of India's loan default too. According to them, in 2017 India's defaulted loans constituted 10 per cent of its total loans, which fell to 6.6 per cent in 2021.
In the second quarter of the year (April-June), Pakistan's loan default was 7.4 per cent. Interestingly, even amid its crisis, default loans have decreased in Pakistan. In the corresponding period of the previous year, the default loans there had been 7.8 per cent.
Nepal's central bank website indicates that while default loans have increased their, they are still low, hovering around 3 per cent. In the first quarter of this year, Maldives' default loans stood at less than 6 per cent. In Bhutan, this was less than 8 per cent.
If Bangladesh wants to enter the upper middle-income bracket by 2031, it will require massive investment, experts say
The World Bank's data on developing countries shows that in 2022 Brazil's default loan rate was 2.6 per cent. Among the BRICS member countries, in the same span of time, Russia's default loans stood at 6.1 per cent. South Africa's loan default rate was 4.5 per cent. In Vietnam this was 1.6 per cent.
Argentina's economic crisis is no secret. It has a high rate of inflation. It has approached the International Monetary Fund (IMF) the highest amount of time too for funds. But even Argentina's default loan rate is lower than that of Bangladesh. In 2022 it stood at 3.1 per cent.
Among the developed countries, in 2022 the loan default rate in the UK was 1 per cent. In the US it was only 0.7 per cent. In other words, it is observed that default loans are higher in developing and unstable countries compared to developed countries.
Financial sector risks
The World Bank report, 'Change of Fabric' published in 2022, referring to Bangladesh's default loans, said that the increase of default loans in the banking sector was posing as a risk to the stability of the financial sector. This was an impediment to funding in the production sector. The report highlighted loan default in the state-owned banks.
Concerning the private sector banks, it said that they provide loans to certain particular companies. But they are unable to distribute loans efficiently in the private sector due to operational weaknesses.
If Bangladesh wants to enter the upper middle-income bracket by 2031, it will require massive investment, experts say.
CDP distinguished fellow Mustafizur Rahman said, if assessed on international standards, the actual volume of loan default in Bangladesh is much higher. Also, around Tk 1000 billion (Taka one lakh crore) of various banks is blocked due to cases. So while on one hand investable funds are decreasing in the country, the banks' profits are decreasing too. He said that due to the rise in loan default, the country macro economy management is weakening.