According to a news report published in different newspapers on November 10, the amount of defaulted loans has increased by another Tk 2 lakh crore. In the last 16 years, the amount of defaulted loans has increased at an excessive rate due to lack of supervision in the financial sector.
From 2009 to June this year, the amount of defaulted loans has increased by Tk 2 lakh 12 thousand 520 crore. The increase in the banking sector has been Tk 1 lakh 88 thousand 519 crore and in finance has been Tk 24 thousand 1 crore. Information on this defaulted loan has been obtained according to various reports published by Bangladesh Bank. According to bankers, the actual situation of the increase in defaults is even more dire. Many have not been included in this category of defaulters.
From December 2008 to the beginning of 2009, the amount of defaulted loans in the banking sector was Tk 22,481 crore, which increased to Tk 2 lakh 11 thousand 391 crore last June. This amount has increased eight and a half times compared to the previous period.
Bangladesh Bank made this comment at a time when the banking sector is burdened with a huge amount of non-performing loans due to irregularities in lending, deliberate defaulters and laxity of regulatory agencies. At the end of December 2023, the amount of non-performing loans in the banking sector of Bangladesh was Tk 145,600 crore, which is 9 percent of the total loan.
Analysts say that this high non-performing loan is affecting the stability and profitability of banks, reducing public confidence. In addition, it is hindering the flow of funds, which will affect the country's economic growth. According to Bangladesh Bank, the amount of non-performing loans at the end of December 2022 was Tk 120,650 crore, which is 8.23 percent of the loans disbursed.
The non-performing loans of banks increased further in the three quarters until September 2023. Although its amount decreased in the fourth quarter, it remained high year-on-year. Bangladesh Bank's quarterly review of currency and exchange rates said that if the non-performing loans are high, banks have to increase provisions against these loans. The banks' capital deficit is mainly due to non-performing loans. It also says that without reducing non-performing loans, there will be no improvement in capital adequacy in the banking system.
The central bank said that state-owned banks have been failing to maintain the minimum capital adequacy ratio for the last 10 years. On the other hand, specialized banks are undercapitalized. The report mentioned special liquidity support, depreciation of the taka, foreign exchange deficit, and borrowing of Islamic banks from Bangladesh Bank due to liquidity deficit as challenges for banks and the financial sector. The report expressed concern that if these problems are not resolved quickly, the overall economic activity will be affected in the long run.
The recent much-awaited anti-discrimination mass uprising in Bangladesh has brought about visible changes in the country's political arena, and in its continuation, we have seen the fall of an authoritarian government and the arrival of a new interim government. Skyscrapers and in its context, the new government has to face various challenges. Many such political and economic challenges are gradually becoming visible before the current interim government, which they will have to deal with appropriately.
One such important challenge is the repair and reform of the country's current broken economy. Although repairing the economy is a short-term concept, it is related to long-term activities like reform.
The economy of Bangladesh has gone through a difficult critical period in the past years and is still ongoing. The chaos in the financial sector is well known today.
The extreme deterioration of good governance and partisanship in the banking sector have turned our country from a country of 'bottomless basket' to a country of 'bottomless defaulted loans'. Apart from this, we are all aware of the rampant currency laundering and stock market scams. In spite of all this, the country's ongoing high inflation has become a discussed challenge for us.
The current inflation rate in Bangladesh is about 12 percent, although this rate may be higher if we take into account the news of the previous government's manipulation of economic data published recently.
Although economic theorists believe that controlled inflation is helpful for economic growth, there is no disagreement that high inflation is harmful to the economy in the long run. High inflation greatly reduces the purchasing power of people. As a result, it makes the lives of the lower and middle class miserable.
If the propensity to save decreases due to high inflation, private investment is hampered in the long run. Apart from this, foreign exchange rates, import costs, foreign investment, etc. can be affected by high inflation. Retired citizens who receive pension benefits are also the unfortunate victims of high inflation. It is also worth noting that according to the Inflation Expectation Hypothesis, a prolonged period of high inflation creates the possibility of more inflation in the future. Therefore, controlling high inflation is essential for current and future economic security.
Various monetary policies of the central bank are mainly given priority to control inflation. The central bank tries to control inflation by changing the country's policy interest rate and controlling the money supply. The current governor of Bangladesh Bank, appointed during the new interim government, has already announced the ultra-conservative stance of Bangladesh Bank on money supply, which is certainly encouraging.
In addition, Bangladesh Bank has already increased the policy interest rate, which is believed to help control inflation. But the amount that the policy interest rate has been increased is not enough to control inflation. Considering the target set for the country's inflation rate, along with the current inflation rate, the policy interest rate will have to be increased from the current 9 percent to above 12 percent, otherwise we will have to wait a long time to get the benefits of the policy interest rate increase, which is not desirable in the current situation.
Author: Former Tax Commissioner and Founding Chairman-National FF Foundation
