United News of Bangladesh

Default loans in Bangladesh's banking sector have surged significantly, reaching Tk 6,44,515 crore at the end of September this year. This alarming figure represents 35.73 percent of the total disbursed loans. The increase is massive compared to the end of December 2024, when the volume of non-performing loans (NPLs) stood at Tk3,35,765 crore. This indicates that default loans have ballooned by Tk 2,98,750 crore over the nine-month period, although this is mainly due to the exposure of funds siphoned off under the previous government that are only now beginning to be included under the NPL category, as well as the adoption of stricter international standards in classifying loans. The development was confirmed by Shahriar Siddiqui, Director and Spokesperson for the Bangladesh Bank, to the media on Wednesday (November 26). Read more: Union Bank suffered Tk 26,000cr net loss in 2024 amid S. Alam Group scam Bangladesh Bank officials attribute the substantial increase to multiple factors: Exposure of Unaccounted Funds: Funds reportedly siphoned off from banks under various names during the tenure of the Awami League government are now beginning to be classified as non-performing. Adoption of International Standards: The country's adoption of international standards for classifying loan defaults is contributing to the rise in NPLs. Failure of Rescheduled Loans: Many loans that were previously restructured or rescheduled are failing to be repaid. Central Bank Intervention: The central bank has listed several irregular loans as defaults, further pushing up the NPL volume. According to data from the central bank, the total outstanding disbursed loan amount stood at Tk 18,03,840 crore at the end of September this year. Of this amount, the defaulted portion, as mentioned, is Tk 6,44,515 crore, which is 35.73 percent. Comparing year-over-year figures, default loans had reached Tk 2,84,977 crore at the end of September last year. This means that the total volume of non-performing loans has increased by a staggering Tk 3,59,718 crore over the past twelve months, for the factors mentioned above. Read more: Bangladesh shifts fiscal gears as bank debt falls

In a bid to mitigate the severe liquidity crisis and prevent bankruptcies stemming from non-performing loans (NPLs), Bangladesh’s central bank has introduced a new provisioning model in compliance with international financial standards. The move aims to ensure banks are better equipped to handle loan defaults and maintain financial stability. The initiative comes as several banks, including those associated with prominent business groups, have struggled with significant NPLs, causing acute liquidity issues. In September last, the provisioning shortfall for 10 major banks exceeded Tk 50,000 crore, with two state-owned banks, Janata Bank and National Bank, accounting for 65% of this deficit. To address this crisis, the Bangladesh Bank has opted to implement the International Financial Reporting Standard (IFRS-9) Expected Credit Loss (ECL) model, which will gradually replace the previous provisioning system. Dutch-Bangla Bank to issue Tk 1,200 crore bonds This model, initially adopted in 2014, ensures that provisions are made early, based on a loan’s credit history, performance and future outlook, rather than waiting for the loan to default. The goal is to prevent sudden liquidity shocks in the banking sector when loans become non-performing. According to the Bangladesh Bank’s roadmap, the new system will be fully implemented by December 2027. Within this timeline, banks are required to establish dedicated working teams, including risk officers and financial officers, to transition to the new model. These teams will report their progress to the central bank in stages, starting with an update in April 2025. By July 2026, the full framework will be in place, with final reports submitted to the Bangladesh Bank. Bangladesh Bank extends import bill payment period to 360 days The transition process will be carried out in phases, with 25% of loan portfolios automated under the ECL model starting in September 2026. The full implementation, covering 75% of loan portfolios, is expected by June 2027, with the entire banking sector’s provisioning system fully aligned with IFRS-9 standards by December 2027. Experts believe the new system will improve transparency in the banking sector, preventing the concealment of poor loan portfolios and ensuring that banks’ financial health is accurately reflected. Mohammad Abdul Mannan, Chairman of First Security Islami Bank, said that a similar model was introduced in the 1990s, revealing the true financial state of many banks that had previously hidden their weak positions. He, however, stressed that while the ECL model would improve provisioning, it would not eliminate the root cause of high NPLs, which often stem from governance issues. A senior official at the Bangladesh Bank highlighted that the ECL model would allow for automated reporting, eliminating the possibility of data manipulation. This shift will provide the central bank with real-time insights into the financial condition of each bank, enabling timely interventions when necessary. The official also noted that banks would need to strengthen their IT infrastructure to meet the demands of this transition, and that the central bank would monitor the capabilities of each bank’s implementation team closely. BIDA launches FDI Heatmap to attract targeted investment in key sectors As Bangladesh continues to navigate the challenges posed by non-performing loans, the adoption of the IFRS-9 model marks a significant step towards restoring stability and transparency in the country’s banking sector. Experts said that robust corporate governance and enhanced oversight will be crucial for the system to be effective in the long term.