Despite the constant alarms being sounded by us in the media about the relentless rise in non-performing loans (NPLs), we find that NPLs are increasing, and not decreasing. This is reflected in the latest figure published by Bangladesh Bank on November 27 which tells us that classified loans stand at Tk22,377 crore, a new record! We have had a series of facilities being given by Bangladesh Bank to defaulters that runs contrary to sound banking practices. Repeat offenders are being allowed to reschedule their already existing bank loans running into thousands of crores, so that they may take out fresh loans!
We find that on May 16, our central bank caved in to further demands of large-scale defaulters. How does one justify the offer to make a deposit of a mere two percent to reschedule classified loans as opposed to the existing 10-50 percent? Why on earth would defaulters bother to repay money siphoned off when they can take this easy way out? And this is not the only bungling we see. The fact that a defaulter can now only pay nine percent interest on rescheduled loans (a reduction from existing 12-16 percent) and a generous 10 years, with a grace period of another year—all point to a regime being put in place that will encourage others to default on their loans and allow existing defaulters an easy way out.
Small and medium entrepreneurs now have little access to affordable funds to do business because the size of NPLs has created a liquidity crunch that is only getting worse with time. We have said it before and we say it again. Unless this trend is checked now, it runs the risk of causing a meltdown in the financial sector somewhere down the line—a scenario which policymakers in every country knows may trigger an economy-wide recession.