Today's global financial landscape is becoming increasingly complex, and commercial banks are inevitably exposed to a wide range of emerging risks that are reshaping the credit approval process. Issues such as supply chain disruptions, environmental, social, and governance (ESG) considerations, trade tariffs, and geopolitical instability have moved from being peripheral concerns to becoming central factors in credit risk assessment and loan decision-making.
From my perspective, the COVID-19 pandemic and other global shocks have shown just how fragile international supply chains really are. Borrowers in sectors like manufacturing, retail, and international trade seem particularly vulnerable. I think banks should take into account the resilience and diversification of a borrower's supply chain-whether they rely too heavily on single suppliers, fragile logistics, or outdated inventory practices. In my opinion, weak supply chain management could easily compromise revenues and raise the probability of default.
Climate change is no longer just an environmental issue - it has become a financial and credit risk. For banks, ignoring climate risks means higher default rates, weaker collateral, and reputational damage. That is why it is now recognized as a key emerging credit risk globally and in Bangladesh. Extreme weather events such as floods, cyclones, droughts, and heatwaves can damage factories, warehouses, and infrastructure of borrowers. In Bangladesh, recurring floods and cyclones disrupt agricultural production and supply chains. Borrowers directly affected by climate-related natural disasters may default on loan repayments, thereby raising banks' Non-Performing Loan (NPL) ratios.
Personally, I see ESG as far more than just a regulatory obligation; I view it as a strategic necessity. In my opinion, integrating ESG factors into credit assessments helps banks evaluate not just reputational exposure but also long-term sustainability. I believe that borrowers with poor environmental practices, weak governance, or a history of negative social impact may face regulatory challenges and market backlash that could undermine their financial standing. Export-oriented sectors like RMG, textiles, leather, and agro-processing must comply with ESG standards to maintain access to EU and US markets. Banks in Bangladesh can strengthen their global image by adopting ESG reporting, thereby securing foreign credit lines and development finance.
I tend to view the rise of protectionism and shifting trade policies as a major source of uncertainty for global commerce. Trade tariffs, in my opinion, often squeeze profit margins and disrupt cross-border operations. Banks, I believe, should carefully consider how these barriers affect a borrower's cost structure and competitive positioning, since such factors can make or break their financial viability.
In my assessment, geopolitical tensions-from wars and sanctions to regime changes-represent some of the most unpredictable threats facing businesses today. I think these factors not only affect access to markets but can also shake currency stability and asset security. In my opinion, a comprehensive geopolitical risk analysis is now indispensable for borrowers with exposure in volatile regions.
According to a study report by PricewaterhouseCoopers (PwC), around 91% of business groups in Bangladesh are planning to transfer ownership to the next generation, compared to the global average of 57%. While this indicates strong family control and generational continuity, the study highlights a critical weakness: the absence of robust succession planning, structured governance, and a clear roadmap for leadership transition. This gap is becoming a major threat to the survival of family-owned businesses, particularly large conglomerates. Without proper planning, leadership vacuums, family disputes, and governance weaknesses are emerging - all of which undermine business continuity. The lack of robust succession planning in Bangladesh's family-owned conglomerates is no longer just a corporate governance issue - it is an emerging credit risk factor. For banks, integrating succession risk into loan proposal analysis and credit screening is essential to ensure financial stability, safeguard against rising defaults, and align with global best practices in risk management.
The rising level of defaulted loans in Bangladesh-and the erosion of public trust that comes with it-has made the role of credit officers and analysts more crucial than ever. I believe their duties have expanded well beyond conventional evaluation and now demand a strong focus on emerging risks.
I think credit officers should adopt a forward-looking approach, considering not just financial performance but also the strength of a borrower's business model, governance, and operational resilience. In my opinion, credit analysts can no longer ignore external forces such as supply chain fragility, geopolitical instability, trade policies, and ESG issues. I believe these should be integrated into every meaningful assessment.
Personally, I feel that refining risk grading models, conducting stress tests, and applying continuous monitoring are vital tools for spotting trouble before it becomes unmanageable. I am convinced that credit officers serve as the first safeguard against reckless lending. In my view, their judgment, adherence to compliance, and insistence on transparency can make a decisive difference.
When borrowers face temporary distress, I think credit officers should play a constructive role in restructuring strategies. In my opinion, the goal should be to balance recovery opportunities with the bank's overall risk appetite.
With over 28 years of diversified banking experience, mostly serving as Chief Risk Officer (CRO) and Head of Credit Risk Management (HOCRM), I feel that emerging risks are here to stay and will only intensify over time. As such, commercial banks will need to rethink traditional approval frameworks, develop sector-specific credit models, and place greater reliance on scenario analysis to capture the full spectrum of uncertainties. In my professional view, institutions that proactively adapt to these evolving risks will not only safeguard their loan portfolios but also strengthen market confidence and contribute meaningfully to building a more resilient and sustainable financial system.
The writer is founder & CEO, Versatile Finance & Management Associates
