At the beginning of December last year, the country’s distressed assets of the banking sector stood at TK7.56 lakh.
Highlights
- Of the TK18 lakh crore in outstanding loans, TK11 lakh crore is now seen as distressed assets
- Only 7-9 banks meet international standards; nearly 40 fall below par
- Due to governance failures, some banks could see non-performing loans (NPLs) hit 30-40%
- The new law intends to assist with mergers and managing toxic assets
- Experts are calling for greater autonomy for Bangladesh Bank amid political interference
According to Mashrur Arefin, Managing Director of Municipal Banks, out of the total TK18 lakh crore in outstanding loans within Bangladesh’s banking sector, a staggering TK11 lakh crore is now categorized as distressed. As of December, distressed assets accounted for 45% of all issued loans, highlighting the shaky state of the financial system.
This panel discussion was jointly organized by the University of Asia Pacific (UAP), the University of Dhaka, along with Germany’s Osbergweden, focusing on the theme “Bank Crisis, Reform, and Regulation” on September 21. The discussions revealed that the majority of loans currently in difficulty include rescheduled loans, those written off, and others which are running yet still pose high risks of default.
Notably, among the 60 domestic banks, only 7-9 can truly be considered up to international standards. The remaining institutions are facing serious issues, including acute liquidity crises attributed to long-standing unregulated practices.
Some depositors have found it increasingly challenging to access their funds, with repayments only offered as limited monthly tokens. Conversely, stronger banks continue to thrive and maintain the trust of their international partners.
Some governmental efforts have shown promise. Arefin acknowledged progress post-forex crisis, including stabilization of the Taka and positive adjustments to trade balances. The introduction of the new Bank Resolution Act is regarded as a significant step forward, equipping the government with tools to address mergers and manage distressed assets effectively.
However, Arefin expressed reservations about certain provisions in the Banking Corporations Act Draft. He raised concerns over the mandated 50% independent directors on boards, suggesting this approach could unfairly penalize well-performing banks while failing to address corruption at deeper levels.
He also criticized the proposed 10% liability financing per family, deeming the definition of “family” to be overly broad and suggesting it detracts from real issues, like the drive towards non-transparent ownership structures.
Sohel RK Hussain, Managing Director of Bank Asia, pointed out that while 95% of bank capital originates from depositors, directors have often neglected depositor interests. He stressed the urgency of addressing these irregularities to help restore order and governance within the sector.
Hussain conveyed the gravity of the current banking crisis, marking it as one of the sector’s toughest challenges. He cautions that NPLs in certain banks could soar to as much as 30-40%, jeopardizing savings. He argues this situation primarily stems from systemic governance failures compounded by governmental interferences.
According to Hussain, traditional oversight mechanisms – such as checks and balances, auditor supervision, and regulatory body oversight – have dramatically weakened over the last several years.
Mohammad Ali, Managing Director of Pubali Bank, also noted concerns about corruption in Islamic and state-run banks from past administrations. He emphasized that the Bangladesh Bank needs enhanced autonomy to facilitate better governance, free from political interference.
