Tighten the reins now
Default loans keep piling up
Bangladesh didn’t come face to face with a major economic crisis like Sri Lanka and that is a relief.
However, we cannot also say that we are at a safe distance from that economic indicators which can put a country in great danger.
The chaotic condition of the financial sector is certainly a cause of concern for government policy makers.
The picture of default loans in South Asian countries portrayed recently in the report of World Bank is worrying.
The issue of excessive loan default in Bangladesh has been in discussion for many years.
Before the elections, all the parties make promises to reduce loan defaults and restore order in the banking sector. But, what happens after the elections is the exact opposite.
In the last 14 years of Awami League rule, defaulted loans have multiplied manifolds.
According to the World Bank report, Sri Lanka with highest rate of defaulted loans is at the top of all South Asian countries. The country has around 11 per cent of loan in default.
Next in line is Bangladesh, with about nine per cent of defaulted loans. Meanwhile, Nepal has the least amount of defaulted loans. The country's defaulted loan rate is lower than two per cent.
Defaulted loans in the Indian banking sector are less than five per cent, in Maldives it’s less than six per cent while for Pakistan and Bhutan it’s lower than eight per cent.
On top of that, in Sri Lanka and Bangladesh defaulted loans are increasing even further.
The report identified three different factors- respectively high import cost, debtors not repaying regular installments and feeble monitoring system of the regulatory agencies, as the reasons for escalation in defaulted loans.
As per Bangladesh Bank records, at the end of December 2022, defaulted loans in the banking sector stood at more than Tk 1.2 trillion (120,657 crore), which is 8.16 per cent of the total disbursed loans.
In December 2021, the amount of defaulted loans was slightly over Tk 1 trillion (103,274 crore); and it was 7.93 per cent of the disbursed loans.
As per the record, defaulted loans in the banking sector increased by more than Tk 170 billion (170,383 crore) within just a year.
If rescheduled and restructured loans etc. are calculated, the amount of defaulted loans will be way too much. Defaulted loans reach almost Tk 3 billion (300,000 crore), if followed IMF figures.
One of the key conditions to receive the 4.7 billion dollar-loan, approved by IMF to Bangladesh in last January was that the rate of defaulted loan in banking sector has to be reduced.
While an IMF delegation has recently inquired about the progress in this matter, the government has delayed that by making some vague promises. Except one or two all the state-owned banks are in delicate conditions.
In private banks on the other hand, directors themselves have taken loans worth millions stepping outside of the rulebook.
The initiative government has taken to amend the law for curbing the rampant behaviors of private bank directors seems more like a cover-up.
Meanwhile, despite bringing a bit of positive change on the board of directors in state-owned banks, the management system didn’t improve. Political influence and authority still work in the lending process.
It cannot be denied that like the rest of the world, people of Bangladesh are also suffering from high inflation caused by Covid-19 pandemic and the Russia-Ukraine war.
Even though the government has nothing much to do in controlling external trade, they can at least take a tough stand to restore order in the financial sector.
If the debtors consider themselves above the law or get away with defaulting on billions of taka, none of government’s law or step will come to any use.