BNP lawmaker Reza Kibria on Thursday criticized the relaxed definition of loan default saying that Bangladesh's banking system is in total shock due to the high volume of default loans.
"We have changed the definition of default loan in the banking sector. Earlier, a loan was considered defaulted if interest remained unpaid for 90 days. Now, if no interest is paid for a year, then it is treated as a default loan," he said in Parliament.
The MP, elected from Habiganj-1, made this remark, participating in the general discussion on the proposed national budget for the 2026-27 fiscal year in the House.
Drawing on his international experience, Kibria said that in the 35 countries where he had worked, a default loan ratio above 6 percent was considered alarming.
"But here, even under this false definition, the default rate stands at 61 percent. That means the banking system is in total shock," he said
He said the banking sector’s efficiency remains low due to the large gap between deposit and lending rates.
"We collect deposits from people at around 5 percent interest, but when an honest businessman seeks a loan, he is charged 14 to 16 percent. That is why our banking sector is not efficient," he said.
According to Reza Kibria, in an efficient banking system the difference between deposit and lending rates should generally remain within 4 to 6 percentage points.
"The most important issue is that honest businesspeople are not getting access to loans," he added.
Reza Kibria, a noted economist, said he had spent 45 years working in the field, beginning his career at the International Monetary Fund (IMF) in 1984.
He said the finance minister prepared the budget under extremely difficult circumstances as the global economy continues to slow down.
The global economic outlook is weakening. Forecasts for world economic output have been revised downward every six months. Given the current global situation, this budget should not come as a surprise, he said.
The BNP lawmaker stressed the importance of maintaining macroeconomic balance for safeguarding Bangladesh's economic future.
Turning to debt management, he said Bangladesh's debt level remains manageable at around 40 percent of GDP, while debt servicing accounts for about 20 percent.
He, however, cautioned against resorting to commercial foreign borrowing.
Bangladesh always prefers loans from international sources due longer repayment periods and significantly lower interest rates, which often remains between 0.5 percent and 1 percent, he said.
On inflation, Reza Kibria said it affects all aspects of the economy, including policymaking and economic growth, and stressed the importance of keeping inflation under control.
Referring to income inequality, he said previous governments had failed to take meaningful measures to address disparities in income distribution.
When poor and marginalised people receive additional income, they spend most or all of it, which has a positive impact on the economy. But if a wealthy person receives additional money, it may not be spent and therefore has a much smaller economic impact, he said.
The BNP lawmaker argued that economic growth cannot be accelerated merely by constructing luxury apartments and shopping malls.
"If investments are concentrated in building large 7,000-square-foot apartments and shopping malls, economic growth will not increase significantly," he said.
Regarding the budget deficit, the noted economist said a deficit of around 4-5 percent of GDP is not excessive in itself, but expressed concern that the budget had been prepared based on several false statistics (unrealistic revenue projections).
He noted that revenue collection over the past 15 years had never exceeded 80-84 percent of the target, and in a year, it had fallen to around 70 percent.
"We prepare budgets based on high revenue targets, but those targets are not achieved. As a result, towards the end of the fiscal year, our (finance) minister has to seek financing from three sources – non-bank private sources, banks and foreign sources," he said.
He said financing from foreign sources is the most dangerous option, while financing from domestic banks and non-bank sources could fuel inflation.
Reza Kibria urged the government to focus on improving the quality of public expenditure through appropriate measures.