Bangladesh Bank is concerned that up to 30 percent of total disbursed loans could turn into defaults, posing a significant risk to the banking sector.
The financial regulators believe that administrative weaknesses and insufficient central bank supervision have left the banking industry vulnerable.
These observations were highlighted in the monetary policy statement for the second half of FY 2024-25, released on Monday.
According to the latest available data from the September quarter, 12.5 percent of total outstanding loans have already become non-performing.
On the same day, Bangladesh Bank Governor Ahsan H Mansur announced his first monetary policy, setting the policy interest rate at 10 percent for January-June 2025 to curb rising inflation.
The central bank acknowledged that the high volume of defaulted loans is a matter of deep concern for the banking sector.
Many banks are facing liquidity crises due to sluggish deposit growth and weak loan recovery.
To address this, liquidity support was initially provided through interbank lending and later directly from Bangladesh Bank.
As per the latest data released by the central bank for the September quarter, non-performing loans, or NPLs, in the banking sector have reached Tk 2.84 trillion, accounting for 16.93 percent of total disbursed loans.
This marks a significant increase from the previous quarter - June, when NPLs stood at Tk 2.11 trillion, or 12.56 percent of total loans.
To address this alarming rise, the central bank has proposed a comprehensive framework aligned with global best practices for loan classification and recovery.
"We are prepared to enforce strict regulations in line with international best practices to enhance governance," it said.
Bangladesh Bank also emphasised its commitment to strengthening regulatory oversight and effectively implementing reforms to restore stability and public confidence in the banking sector.
Governor Mansur noted, "Banking sector reforms are underway. Forensic audits are being conducted on several banks, which will provide deeper insights into their overall condition."
Bangladesh Bank has reaffirmed its commitment to providing liquidity support to struggling banks, emphasising its responsibility to safeguard depositor interests.
It said, "Liquidity support will be provided to banks facing a liquidity crisis. Protecting depositors' interests is our priority. If necessary, additional support will be extended to affected banks."
Addressing the ongoing liquidity crunch, the governor estimated that resolving the crisis could take one to one-and-a-half years. He added, "Since taking office, I have already addressed liquidity issues in several banks."
Meanwhile, Deputy Governor Md Habibur Rahman cautioned banks against over-reliance on treasury bills and bonds, noting that their recently high returns will not last long.
"Yields on treasury bills and bonds have already started to decline. Bangladesh Bank will implement policies to prevent excessive profits from these investments," he added.
—bdnews24.com
