To refinance or restructure loans over Tk 50 crore, Bangladesh Bank formed a five-member committee in January of last year. But at the time, no particular structure for policy was created. Since then, the committee has undergone restructuring, and more than 1,200 applications have been sent through different institutions to the central bank. According to the recently reorganized committee, up to 28 institutions are engaged in some of these petitions, which makes the settlement process very time-consuming.
Consequently, the new committee has decided to allow banks to handle policy support issues independently. Moving forward, only cases that banks cannot resolve will be forwarded to Bangladesh Bank. All actions will adhere to the policies outlined in the relevant circular.
Industry stakeholders have noted that Bangladesh Bank has adopted a stringent approach towards defaulters. Banks are no longer able to conceal defaulted loans as they previously did. As a result, the volume of defaulted loans in the banking sector has surged nearly threefold over the past year. By the end of last March, the total amount of defaulted loans reached 4 lakh 20 thousand 335 crore taka, accounting for 24.13 percent of all loans.
This abrupt rise in defaulted loans has led many banks to face a provision deficit, resulting in only a few banks being able to distribute dividends this year. If any bank’s defaulted loans surpass 10 percent next year, they will be ineligible to pay dividends, regardless of their profits. For these reasons, banks are now actively working to reduce defaulted loans. To prevent any business closures due to the central bank’s sudden tightening, banks will be permitted to offer benefits by adhering to specific policies.
The recent surge in defaulted loans has placed numerous banks in a provision deficit, resulting in only a few banks being able to distribute dividends this year. If any bank’s defaulted loans surpass 10 percent next year, regardless of their profit levels, they will be unable to issue dividends. Consequently, banks are now actively working to decrease defaulted loans. To prevent any business closures due to the abrupt tightening of the central bank’s policies, banks will be able to offer benefits by adhering to specific guidelines.
Following the government change on August 5, the central bank adopted a stricter approach, whereas the previous administration employed various strategies to mitigate defaulted loans. At times, loans were rescheduled for a 12-year term under a special arrangement requiring a two percent down payment, and restructuring was permitted. Additionally, loans were maintained as regular despite non-repayment under the pretext of the Corona pandemic. This leniency led to the emergence of a new group of non-repayers. Over the past five years, a total of 2 lakh 58 thousand 143 crore taka in loans have been rescheduled, including 56 thousand 582 crore taka in 2024 and a record 91 thousand 221 crore taka in 2023.
In a press release last January, Bangladesh Bank stated that it has implemented various initiatives to sustain the economy and strengthen the banking sector in response to the shocks from Covid-19, the Russia-Ukraine conflict, global economic downturns, natural disasters such as floods, and, most importantly, the political climate. To this end, Bangladesh Bank has established a 5-member selection committee tasked with making recommendations regarding defaulted loans of Tk 50 crore and above. However, the absence of a specific framework and the focus solely on loans of Tk 50 crore and above may lead to future inquiries. In light of this, efforts are being made to bring the situation under a structured framework.
