The amount of non-performing loans (NPLs) in Bangladesh’s banking sector has once again crossed Tk 600,000 crore. According to updated Bangladesh Bank data, NPLs increased by Tk 17,851 crore over the three months from March to June this year.
An analysis of the NPL data shows that 32.78 per cent of total loans in the banking sector have become non-performing. In other words, Tk 32.78 out of every Tk 100 lent by banks is now classified as non-performing. This money is no longer contributing to the economy, while depositors’ funds have been put at risk.
People familiar with the sector say that following the political changeover in August 2024, the true extent of long-standing irregularities, fraud and loans taken through anonymous or proxy borrowers in the banking sector is now coming to light. As a result, NPLs have reached an alarming level.
Fahmida Khatun, distinguished fellow at the private research organisation Centre for Policy Dialogue (CPD), told Prothom Alo, “Non-performing loans did not emerge suddenly. The review of the quality of bank assets is now exposing the sector’s actual weaknesses. Previously, many troubled loans remained hidden through rescheduling, special concessions and accounting adjustments.”
NPLs rise by Tk 170 billion in three months
According to Bangladesh Bank data, NPLs in the country’s banking sector stood at Tk 5.88 trillion (Tk 588,704 crore precisely) at the end of the March quarter. By the end of June, the figure had risen to Tk 6.06 trillion (Tk 606,555 crore).
Earlier, at the end of June last year, NPLs crossed Tk 6.08 trillion (Tk 608,345 crore) for the first time. They rose further to Tk 6.44 trillion (Tk 644,515 crore) by the end of September that year—the highest level of NPLs in the country’s history so far.
NPLs subsequently fell somewhat to Tk5.57 trillion (Tk 557,217 crore) at the end of December last year. During the first three months of this year, from January to March, NPLs jumped by Tk 314.87 billion. The upward trend continued during the following three months as well.
Regarding the rise in NPLs, Bangladesh Bank spokesperson Arif Hossain Khan told Prothom Alo yesterday that the increase was mainly due to interest continuing to accrue on NPLs at regular rates and the recognition in the accounts of loans that had remained unpaid for a long time.
However, he said, policy provisions had already been introduced to allow loan rescheduling in order to reduce NPLs. He hoped this would help bring down the NPL ratio somewhat in the future.
Bankers, however, have a somewhat different view from Bangladesh Bank’s explanation. The managing director of a private bank, speaking to Prothom Alo on condition of anonymity, said interest does not accrue on non-performing loans. One of the main reasons for the increase in NPLs, he said, was the billions in fictitious and proxy loans issued during the Awami League government.
Over 80pc of loans at all 5 merged banks are NPLs
The five banks that have been merged are in the worst condition. Hit by severe liquidity and loan crises, the five banks are currently operating collectively as Sammilito Islami Bank.
According to central bank data, more than 80 per cent of the total loans disbursed by these five banks have now become non-performing. The banks reached this situation after large sums of money were siphoned off in previous years through politically influenced irregularities, fraud, the opening of fake letters of credit (LCs) and the use of proxy entrepreneurs.
The banks are EXIM Bank, Social Islami Bank, First Security Islami Bank, Global Islami Bank and Union Bank. Four of them were owned by controversial Chattogram businessman Saiful Alam, better known as S Alam, or his group. EXIM Bank was owned by Nasa Group Chairman Nazrul Islam Mazumder. Both men were close to ousted prime minister Sheikh Hasina.
Outside these five banks, more than 50 per cent of the loans at state-owned BASIC Bank and Janata Bank, and private-sector AB Bank, Bangladesh Commerce Bank, ICB Islamic Bank, Padma Bank, Islami Bank and IFIC Bank are non-performing.
Who are the top loan defaulters?
In April, Finance Minister Amir Khasru Mahmud Chowdhury disclosed the names of the country’s 20 largest loan-defaulting companies in response to a written question in parliament. Eleven of them were under the control of Chattogram-based S Alam Group.
The S Alam Group companies are S Alam Super Edible Oil, S Alam Vegetable Oil, S Alam Refined Sugar Industries, S Alam Cold Rolled Steels, Sonali Traders, Global Trading Corporation, Chamon Ispat, S Alam Trading Company Private, Infinite CR Strips Industries, Karnaphuli Foods and Murad Enterprise.
The list also includes Bangladesh Export Import Company (Beximco) and Beximco Communications (Akash DTH), owned by former prime minister’s adviser Salman F Rahman. It also includes Keya Cosmetics, owned by Abdul Khaleque Pathan, and Deshbandhu Sugar Mills, owned by Golam Mostafa.
The list further includes Power Pac Mutiara Keraniganj Power Plant and Power Pac Mutiara Jamalpur Power Plant, owned by Sikder Group. Also on the list are Pacific Bangladesh Telecom (Citycell), owned by former foreign minister Morshed Khan; CLC Power Company, owned by deceased Awami League MP Aslamul Haque; and Rangdhanu Builders (Pvt.) Limited, owned by Dhaka’s Rupganj-based businessman Rafiqul Islam.
How the NPL figures came to light
When the Awami League-led coalition government took office in 2009, the amount of NPLs stood at only Tk 224.81 billion. After 15 years in power, just before the government was ousted, NPLs had risen to Tk 2.11 trillion (Tk 211,391 crore) by June 2024.
After the political changeover and the interim government taking charge, previously concealed information and the true state of the financial sector began to emerge. Domestic and international audit firms uncovered the actual condition of the banking sector.
This led to a liquidity crisis in the banking sector. To overcome the deadlock, the interim government introduced special concessions allowing loans to be rescheduled and borrowers to settle loans in one go after receiving waivers on interest. After the BNP government came to power, these facilities were expanded further.
People familiar with the sector say that repeated rescheduling can temporarily reduce NPL figures on paper, but it will not bring about any fundamental change in the banking sector.
Mashrur Arefin, chairman of the Association of Bankers, Bangladesh (ABB) and managing director of City Bank, told Prothom Alo that many entrepreneurs were under pressure because of the energy crisis.
New lending has declined sharply, while private-sector credit growth has fallen to its lowest level. This, he said, has contributed to the rise in NPLs. He expects NPLs to decline in the future.