Bangladesh Plunges Into Deep Financial Crisis

(MENAFN- IANS) New Delhi, Sep 23 (IANS) Bangladesh has plunged into one of its worst financial crises in recent history, with the country's banking sector reeling from a huge default on loans, non-bank financial institutions on the verge of collapse and the shares of a large number of companies listed in the stock market trading below their face value, according to a report in the Dhaka Tribune.

A vicious cycle of defaulted loans, weak regulation, political influence, corruption, and the dominance of junk companies has left the economy in a precarious state, the report states.

The Asian Development Bank (ADB) recently reported that Bangladesh now has the highest volume of defaulted loans in Asia.

According to the latest estimates from Bangladesh Bank, defaulted loans of commercial banks stood at around Tk6 lakh crore at the end of June. In addition, another Tk3.18 lakh crore in hidden defaults is in the process of being disclosed.

Amid this dire situation, the government has proposed removing the definition of“wilful defaulter” in the draft of the new Banking Company Act. The draft argues that identifying wilful defaulters is complex and not aligned with reality.

However, the amended law of 2023 required every bank to prepare a list of wilful defaulters and submit it to the central bank.

In 2024, 20.2 per cent of the country's total disbursed loans defaulted-28 per cent higher than the previous year. The ADB described Bangladesh as having the“weakest banking system” in Asia.

The report cited Selim Raihan, executive director of South Asian Network on Economic Modelling (SANEM), as saying:“The problem will not be solved unless political interference is stopped and the judiciary is strengthened.”

In an unprecedented move, Bangladesh Bank has decided to merge five Islamic banks-First Security, Social Islami, Global Islami, Union, and Exim Bank-into a new state-owned entity, tentatively named United Islami Bank. The government will inject at least Tk20,000 crore in capital. The default loan rates of these banks range between 48 and 98 per cent.

The situation is equally grim for state-owned banks. Recovery of defaulted loans has virtually stalled. In the first six months of this year, the top 20 defaulters owed Tk31,908 crore, of which only Tk219 crore was recovered.

The instability in the banking sector has spilt over into non-bank financial institutions. Here, the situation is even more alarming.

According to Bangladesh Bank, defaulted loans of 20 troubled NBFIs total Tk21,462 crore, representing 83 per cent of their loan portfolios. The central bank has recommended the liquidation of nine of these institutions.

Experts say the sector has effectively gone bankrupt, with many unable to repay depositors, further eroding public confidence.

Central bank officials warn that unless swift action is taken to protect depositors, the sector could collapse entirely.

The stock market has also been under prolonged stress. Over the past 16 years, the market has shrunk by about 38 per cent. Adjusted for inflation, investors have lost capital at an average rate of 3 per cent annually.

Meanwhile, an influential group has reportedly exploited the market to amass wealth.

According to the Dhaka Stock Exchange (DSE), shares of 98 out of 397 listed companies are now trading below the face value of Tk10. More than half of these are priced under Tk5.

Saiful Islam, president of the DSE Brokers Association of Bangladesh, said,“So many junk shares in the stock market are discouraging foreign and institutional investors. Weak companies need to be closed or merged quickly, and new strong companies must be brought into the market.”

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