There is a fear of an increase in non-performing loans, so establishing good governance in the banking sector is urgent

The multifaceted crisis in the banking sector is becoming more acute due to the increase in default loans. In the last 15 and a half years of the ousted Awami League government, the country’s banking sector has been hit by a major disaster due to widespread looting. Earlier, the actual information on default loans was hidden and reduced. Now all the information is being published. This is rapidly increasing the number of default loans.

Meanwhile, according to the IMF’s conditions, the definition of default loans must be made international by March. As a result, a loan will become defaulted three months after the installment payment deadline; now it is after six months. If the new rules are implemented, there is a risk that default loans in banks will increase at an excessive rate. This is likely to weaken the banks further. It is worth noting that before the fall of the government, a research report by the Center for Policy Dialogue (CPD) had said that Tk 92,261 crore has been looted in 24 major financial scams in the last 15 years. Among these, information is also available about terrible frauds in the names of some major industrial groups.

After the government fell on August 5, the current government released the data on defaulted loans for the June quarter on September 4. During that time, defaulted loans increased to Tk 2,11,391 crore. Due to the release of the actual data, defaulted loans increased by Tk 29,391 crore. Experts fear that the picture of defaulted loans in the banking sector may take a more dire shape in the future. A significant portion of the loans that large industrial groups have taken from big banks may default in the future.

In fact, the upward trend of defaulted loans has become a major concern for the banking sector. If the defaulted loans of banks increase, the provision deficit will increase. There is a risk that these indicators of banks – defaulted loans, provisions and capital deficit – will deteriorate. Globally, various banks do not want to accept LCs of weak banks. Then a guarantee has to be given by a third bank. This has to pay additional money as guarantee fees to that bank. This increases import costs. Due to the increase in defaulted loans, the level of discomfort in the banking sector as a whole is also increasing. In fact, the increase in defaulted loans will take all other indicators into a negative trend.

The interim government has taken several measures, which have stopped looting and money laundering from the banking sector. This has increased the flow of dollars in the market. Liquidity has also started increasing. However, the liquidity crisis in several weak banks is still evident. Since defaulted loans have taken the form of an incurable disease in the banking sector, appropriate steps must be taken as soon as possible to restore normal conditions in this sector. A task force has been formed to reform the banking sector, and a white paper is also expected to be published. Appropriate steps must be taken to implement the recommendations of the task force to restore normalcy in this sector.