Bangladesh’s banking sector is facing heightened scrutiny as its rise in risky loans reached Tk 377,922 crore by the end of the last year.
This revelation comes from the recent Bangladesh Bank Financial Stability Report.
The figure combines non-performing loans (NPLs), rescheduled loans, and restructured written-off loans.
NPLs amounted to Tk 120,649 crore, while outstanding rescheduled loans stood at Tk 212,780 crore, and outstanding written-off loans were Tk 44,493 crore.
This disclosure is connected to conditions set by the International Monetary Fund (IMF) for a $4.7 billion loan.
These conditions require the central bank to resume reporting distressed assets in its annual financial stability report.
In January, the IMF’s staff report recognized the risks of ending COVID-19 financial support policies. The policy could gradually lead to banking system losses.
The report emphasized the importance of accurate asset classification and proper provisioning for distressed assets.
According to the Bangladesh Bank’s Financial Stability Report, the quality of the banking sector’s assets slightly worsened in 2022.
Gross NPLs saw a slight increase, rising from 7.93% to 8.16% concerning total outstanding loans.
Key contributors to NPLs were shipbuilding and shipbreaking (22.43%), leather and leather-based industries (11.75%), textile (11.54%), and garment (11.12%).
To address this issue, the report suggests closely monitoring regular, rescheduled, and restructured loans and improving NPL recovery to enhance asset quality.
However, external factors like geopolitical conflicts could hinder progress.
Rescheduled loans nearly doubled in 2022 due to the phased-out pandemic-related loan moratorium.
Outstanding rescheduled loans increased from Tk 26,810 crore to Tk 63,720 crore compared to the previous year.
Frequently rescheduling loans contributes significantly to the sector’s growing stressed assets.