Distressed assets threaten banking stability, economic growth

The escalating issue of distressed assets within the banking sector has emerged as a significant concern for the country's quest to regain economic stability. Experts warn that the increasing volume of non-performing loans threatens the financial health of banks and undermines investor confidence.

The central bank's recent Financial Stability Report highlighted a staggering surge in distressed assets, now nearing Tk 5.5 lakh crore. This situation, driven by rampant loan irregularities and insufficient regulatory enforcement, poses serious risks to the overall economy.

Analysts emphasize that addressing the issue of distressed assets is crucial for restoring financial stability and ensuring sustainable growth. They call for urgent reforms in banking practices, improved oversight by the Bangladesh Bank, and accountability measures for borrowers.

Mirza Walid Hossain, President of the Bangladesh Jubo Arthoniutibid Forum, has raised alarms over the skyrocketing levels of distressed assets within the banking sector, asserting that this trend is undermining the stability of financial institutions and hindering the country's economic growth.

Hossain highlighted that the number of distressed assets in Bangladesh's banking sector surged to nearly Tk 5.5 lakh crore by the end of 2023, attributing this alarming situation to rampant loan irregularities and the Bangladesh Bank's inadequate regulations and enforcement. He emphasized the need for exemplary punishment for large-scale bank loan borrowers who have received substantial support from the Awami League government.

The central bank's Financial Stability Report for 2023 revealed the staggering figures behind this crisis: defaulted loans reached Tk 1,45,633 crore, while rescheduled loans climbed to Tk 2,88,540 crore, and write-offs totaled Tk 53,612 crore. The report also noted that a significant portion of loans remain unclassified due to court orders.

Hossain's comments underscore the urgent need for reforms in the banking sector to restore stability and confidence among investors. He called on authorities to take decisive action against those responsible for the ongoing irregularities, advocating for a comprehensive review of existing policies to prevent further deterioration of the financial landscape.

Ayub Jibon, a senior lawyer at the Bangladesh Supreme Court, has called for the swift resolution of cases in money loan courts (Artha Rin Adalat) to facilitate the recovery of non-performing loans (NPLs) in the banking sector. Established in 2003, these specialized courts were intended to expedite the resolution of disputes between banks and clients regarding loan repayments. However, they are currently facing significant backlogs.

Jibon highlighted that approximately Tk 60,000 crore in loans remains unclassified due to stay orders issued by the courts, further complicating the already critical situation in the banking sector. He emphasized the need for timely judgments to alleviate the burden on these courts and improve the recovery process for banks.

The accumulation of unclassified loans hampers financial stability and poses risks to the overall economy, making Jibon's recommendations timely and essential. By ensuring more efficient court proceedings, the legal system can play a crucial role in addressing the challenges posed by non-performing loans and restoring confidence in the banking sector.