What is the benefit of exaggerating the number of defaulted loans? The number of defaulted loans in the country’s banking sector is already a major crisis. One after another, reforms, stricter policies, and foreign audits have now exposed a difficult reality for the entire sector: the uncertainty of recovering more than one-third of the total loans disbursed.
Economists argue that revealing the true scale of defaulted loans is undoubtedly important for transparency. But the question remains: who actually benefits from showing such high figures?
One-third of loans unpaid
According to the latest data from Bangladesh Bank, the total disbursed loans of the banking sector as of last September were Tk1,803,840 crore, of which 35.73%, or about Tk650,000 crore, are now defaulted. This is the first time since at least 2009 that the actual amount of defaulted loans has been openly visible.
Policymakers say the previous government’s “convenient explanation” for reducing defaulted loans is no longer possible. Strict central bank regulations, foreign audits, and forcing banks to disclose the real situation are all revealing previously “hidden” defaulted loans on a large scale.
But the question remains: will simply disclosing the figures in large numbers restore confidence in the banking sector?
Dire future
The Policy Research Institute (PRI) estimates that if bad loans—including rescheduled and restructured loans—are fully accounted for, the amount of risky assets will reach around Tk950,000 crore. Experts say the possibility of recovering these loans is “extremely limited.” In this situation, at least 16 banks are unable to provide new loans.
As a result, investment, production, and employment are shrinking—one of the major reasons for the slowdown in the overall economy.
Bangladesh Chamber of Industries President Anwar Ul Alam Chowdhury Parvez said: “When businessmen take new loans, a large part is used to repay installments of previous loans. In this situation, suddenly reducing the default period to three months is an injustice to the working-class economy.”
He added that new investment has stopped. Businessmen are taking loans only to repay old ones, while interest rates remain at 15%-16%. The three-month default rule is pushing many into default.
BKMEA President Mohammad Hatem alleged that defaulted loans are rising due to policy mistakes by the government and Bangladesh Bank. He said: “Instead of providing genuine support to businessmen, various important facilities are being withdrawn. As a result, it has become difficult for entrepreneurs to run their businesses, so defaulted loans are naturally increasing.”
“Although Bangladesh Bank discussed policy support for defaulters in the past, it was practically limited to a small number of institutions. Later, these facilities were stopped or left to the discretion of the banks. Now most banks are reluctant to reschedule. How can institutions run their businesses in this situation?” he asked.
Even though many entrepreneurs pay regular installments, the principal debt is not decreasing, with banks only collecting the interest portion. He warned that if this situation continues, defaulted loans will rise further, and Bangladesh Bank’s policies are largely responsible.
Transparency or instability in strict policies?
Bangladesh Bank says that, according to international standards, loans are now considered defaulted if unpaid for three months. This is exposing long-standing hidden debts.
Default figures of banks audited by foreign firms—especially the five Shariah-based banks—have increased several times. Analysts argue that while transparency is essential, the sudden reduction in the deadline has left businessmen unprepared. In reality, this has not reduced irregularities; instead, the number of defaulters has increased.
Dhaka Chamber of Commerce and Industry (DCCI) President Taskin Ahmed commented: “It is necessary to know the real status of non-performing loans, but merely ‘showing it off’ is not a solution—it worsens the crisis.”
He said that the impacts of Covid-19, the Ukraine-Russia war, the energy crisis, the dollar crisis, and high interest rates are already pressuring businessmen. According to him, the decision to classify defaulters within three months should have been implemented in two stages with advance notice.
“No one benefits from showing inflated numbers of non-performing loans. Displaying exaggerated figures without addressing the root causes will only create more panic.”
Dr Mostafizur Rahman, distinguished fellow of the Centre for Policy Dialogue (CPD), said this is not an increase in new defaulters, but rather the revelation of previously hidden loans. He highlighted reforms by Bangladesh Bank, including the central bank’s stronger role, weak bank mergers, the formation of asset management companies, and seizure and monitoring of defaulters’ assets. But he warned that this effort at transparency is being undermined by another reality—the surge in provision deficits.
Benefit of increasing the number of defaulted loans
Economists say that increased transparency, disclosure of hidden loans, opportunities for future banking reforms, and a clear picture of weak banks are the benefits.
Dr Zahid Hussain, former chief economist of the World Bank Bangladesh office, said: “There is no way out except transparency, but tightening policies will not reduce defaulters. Reforming the weak debt collection system is the real solution.” He warned that banks are repeating old mistakes by offering rescheduling and write-off facilities, as in the past.
According to him, it is like giving drugs to an addict—more defaulters will emerge. He added that the legal framework for debt collection is weak due to ineffective debt courts, political interference, and lenient policies towards large borrowers. Simply publishing the figures without addressing these issues serves no purpose and will only increase policy confusion.
