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Distressed loans equal to cost of 22.5 Padma bridges

Discovers committee for preparing white paper on economy
REJAUL KARIM BYRON AND AM JAHID
Distressed assets in the banking sector have reached a whooping Tk 6,75,030 crore, an amount bigger than the cost of building 22 bridges across the Padma or 13.5 metro rail systems in Dhaka, according to a White Paper released yesterday.
The amount is the sum total of non-performing loans (NPLs), rescheduled and restructured loans, and outstanding written-off loans. These account for 31.7 percent of the total bank loans as of June 2024.
Attributing the crisis to systemic regulatory failures, the report said a fragmented regulatory system enabled widespread malpractice, leaving banks under-provisioned and ill-prepared to withstand the current financial stress.
“It’s not the economy, stupid. Bangladesh’s financial sector distress did not emerge from economic disruptions or financial crises or even political instability. Economic factors such as trade, remittances, investments, inflation, commodity prices, exchange rates, and interest rates cannot explain the sustained drain in balance sheets and trust in market makers and regulators,” reads the White Paper.
The details reveal Tk 2,11,391 crore in recognised NPLs, Tk 2,72,856 crore in rescheduled and restructured loans, Tk 75,389 crore in written-off loans, Tk 39,209 crore in special mention accounts, and Tk 76,185 crore in loans pending under court orders.
“The distress is even larger when the bad loans of the non-bank financial institutions (NBFIs) are accounted for,” it says.
The White Paper states that the culprits within the banking system are all influential heavyweights and the concentration of non-performing loans (NPLs) closely aligns with the concentration of overall loans, revealing a deeper, systemic issue.
“The culprits within the banking system are all heavy weights. The big ones coincide with the bad ones. NPL concentration mirrors loan concentration and more.”
An organised network of business conglomerates, bureaucrats and politicians coalesced explicitly and implicitly to use the financial system to mine public money by capturing corporate and regulatory governance, it adds.
“Laws and regulations were tailored and retrofitted to serve the interests of this troika in the spot and forward markets for local and foreign currencies. De jure accountability systems were de facto deposited in a deep fridge. The web of institutions to adjudicate disputes, regulate markets, and allocate resources largely exhausted the trust of the public.”
Dominant business interests have captured regulatory safeguards, leading to operational inefficiencies that have stifled growth and excluded startups and entrepreneurs without tradable collateral from accessing credit, it says.
“Big players siphoned big money. Embezzlement of big chunks of money from different banks by a number of groups through fake companies or without proper documentation became a privilege of large borrowers.”
The regulatory framework, particularly at Bangladesh Bank, has been compromised by collusion between top officials and influential outsiders, especially during the period from 2015 to 2024.
The central bank failed to enforce prudential requirements on state-owned banks, allowing repeated violations without sanctions. Amendments to the Bank Company Act in 2018 and 2023 introduced a distinction between willful and un-wilful defaulters, with the former ambiguously defined as those who “fail to repay despite having the capacity”.
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