Rising NPLs is the regulators’ fault

It is alarming that default loans in the banking sector in Bangladesh have surpassed Tk 1 lakh crore again, despite a relaxed loan classification policy adopted by the central bank. Because of the economic ramifications of the Covid-19 pandemic, the Bangladesh Bank was forced to relax the loan policies, following which the rise in non-performing loans (NPL) came. But now that the economy is getting back on track and businesses are again making profits, some are still refusing to pay back their loans.

What is most unfortunate is that we are not really surprised by any of this. Even before the pandemic hit, the regulators had been granting defaulters—many of whom were wilfully so—absurd amounts of leniency, which experts had warned at that time would have long-term negative impacts for the banking sector. Many large borrowers were able to reschedule their loans ad infinitum using their political connections, violating all banking rules and norms. In fact, regulations in the banking sector have turned meaningless as the regulators have consistently bent them at the will of big businesses that are backed by influential quarters. Then why should we be surprised when others try to take advantage of this? And whose fault is it really that more and more borrowers are now refusing to repay their loans, despite having the means to do so?

When delinquent borrowers were not punished and had their loans rescheduled without any legitimate reasons, what signal did that send to potential borrowers—that they, too, can default on their loans without any repercussions? The impunity granted by the regulators over the years is what has created this tendency among a large number of borrowers now to not repay their loans. Which is why the responsibility for this rise in NPL now falls squarely on the regulators' shoulders.

The only way to solve this mess is for the regulators to return to applying the banking rules and regulations uniformly for all, and to not give in to political pressure when it comes to making banking-related decisions. In line with that, the regulators must identify the wilful defaulters and, instead of rescheduling their loans over and over again, take all legal measures necessary to try and recover their borrowings.