The central bank’s most recent data shows that in Bangladesh, the leather, ready-made garment (RMG), and textile sectors are the main causes of loan defaults in 2023.
NPLs (non-performing loans) were most common in the leather and leather-based industries, accounting for an alarming 21.27 per cent of all outstanding loans, or Taka 13,242 crore, on an annual basis.
With NPLs amounting to 13.88 per cent of all outstanding loans at Taka 1.63 lakh crore, the RMG sector—a pillar of Bangladesh’s economy—faced formidable obstacles.
The situation deeply concerns Mohammed Hatem, president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA). He issued a warning, stating that the number of loans that are in default is expected to double if Bangladesh Bank’s circular, which follows World Bank and International Monetary Fund criteria, is left in place. Before, there was a six-month grace period for borrowers to make their repayments; however, the new clause stipulates that default will occur if any installment is missed.
“With effect from March of next year, there is no question that 90 per cent of the nation’s businessmen will default as a result of this decision.” Hatem said, “The business community is being strangled.” He stressed that companies will find it difficult to pay back their obligations if defaults persist, which will exacerbate the financial crisis.
In the textile sector, the situation is similarly worrying, with NPLs representing for 10 per cent of outstanding loans, which stood at Taka 1.30 lakh crore. Bangladesh Bank issued a warning, stating that the asset quality in these sectors can be dangerous for the stability of the banking system as a whole.
The gross non-performing loan (NPL) ratio for the banking industry increased little overall, from 8.16 per cent in 2022 to 9 per cent by the end of December 2023. In the context of a total loan rise of Taka 1.39 lakh crore, the total gross non-performing loans (NPLs) increased by Taka 24,977 crore, to reach Taka 16.17 lakh crore.
The decline in asset quality is ascribed by analysts to insufficient supervision over loans and advances, a sluggish pace of non-performing loan recovery, and exogenous factors such the prolonged conflict between Russia and Ukraine and other worldwide predicaments that have weakened the ability of borrowers to repay loans.
The leather, RMG, and textile industries are under a lot of strain as the economy changes, which has led to urgent requests for new policies to help these vital sectors get out of their financial binds.