IMF concerned about rising defaulted loans.
The International Monetary Fund (IMF) has expressed concern over the unbridled increase in non-performing loans in the country’s banking sector. This concern was expressed in the latest meeting of the IMF delegation visiting Bangladesh Bank in Dhaka.
However, the donor organization has expressed satisfaction with the progress in implementing the roadmap announced by the central bank to reduce non-performing loans. This information was revealed by relevant sources.
A delegation led by IMF Mission Chief Chris Papadakis visited Bangladesh on Tuesday to review the progress in fulfilling various conditions before releasing the fourth tranche of the $4.7 billion loan program provided to Bangladesh. They have already held separate meetings with officials at various levels of the central bank.
In these meetings, the donor organization presented its observations on various issues of the overall economy, including the implementation of monetary policy targets, inflation control, exchange rate, foreign exchange balance, reserve situation, implementation of the roadmap to reduce non-performing loans, and liquidity situation in the banking sector. The delegation is scheduled to hold multiple meetings with officials at various levels of the central bank today and Sunday.
It is known that one of the conditions of the IMF loan is to reduce non-performing loans to below 8 percent by June 2026. During this period, non-performing loans of state-owned banks should be reduced to below 10 percent and non-performing loans of private banks should be reduced to below 5 percent. In line with that condition, Bangladesh Bank announced a roadmap to reduce non-performing loans and restore good governance in the banking sector. The roadmap calls for the implementation of about 17 action plans. Bangladesh Bank has already issued circulars to implement 15 action plans. But non-performing loans are not decreasing, but are increasing uncontrollably.
According to Bangladesh Bank, non-performing loans have increased by about 73,500 crore taka in the last three months from July to September. This is unusual. From last April to September, it increased by 1 lakh 2 thousand 682 crore taka in a six-month period. In total, the amount of non-performing loans in the banking sector stood at about 2 lakh 85 thousand crore taka at the end of last September, which is about 17 percent of the total loans disbursed. During this period, the defaulted loans of government banks increased from Tk 23,628 crore to Tk 1,26,112 crore, which is 40.35 percent of the distributed loans. And the defaulted loans of private banks increased by Tk 49,885 crore to Tk 1,49,806 crore or 11.88 percent. The defaulted loans of specialized banks increased by Tk 5,814 crore or 13.21 percent.
Sources said that last Wednesday, the visiting IMF delegation held a meeting with officials from various levels of the Banking Regulations and Policy Department of Bangladesh Bank. In that meeting, concerns were expressed about the unbridled increase in defaulted loans. However, the donor organization expressed satisfaction with the progress in implementing the roadmap to reduce defaulted loans and restore good governance in the banking sector.
In this regard, a senior official of Bangladesh Bank told our time, we had 17 issues in the roadmap. Circulars have already been issued on 15 issues. In addition, the latest progress on the other two issues has been explained. The IMF has expressed satisfaction with this. However, they are concerned about the abnormal increase in default loans. We have said that earlier banks used to hide default loans.
However, after the interim government took office, various reform measures were taken, and banks have started showing the true picture of default loans. In addition, international methods have been followed in the definition of default loans. Moreover, loan repayments have also decreased due to stagnation in business and trade. Due to these reasons, default loans have increased. However, it is also a good thing that the true picture of default loans is now emerging. In view of this, various steps are being taken. This will reduce default loans in the near future. However, it will be difficult to bring down default loans within the target range set by 2026, the official also commented.
Meanwhile, there is no possibility of default loans decreasing in the future. Rather, it is feared that they will increase further. Talking to the concerned people, it is learned that one of the conditions of the IMF was that the definition of default loans should be made to international standards by next March. The central bank has defined defaulted loans in line with international standards by issuing a circular on November 27. The new definition will come into effect from April next year. It stipulates that all types of loans or loan installments will be considered defaulted three months after the due date.
Currently, term and agricultural loans default after six months. The default period for these loans has been reduced to three months. Again, information on all frauds in the banking sector has not yet been published. The boards of 9 banks taken over by the S Alam Group have been abolished and new boards have been reconstituted. Audits are now being conducted in all those banks. It will take more time to uncover all the fraud information. If all that information is collected and the new circular comes into effect, there is a risk that defaulted loans will increase further in the future.
Another condition of the IMF was to form an asset management company to increase the recovery of defaulted loans and to recover the loans by seizing the assets of the defaulters. Work is underway to formulate a policy in this regard.
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