Bad Loans Hit a Record Tk 6.06 Lakh Crore and the Clean-Up is Still a Paper Plan

Bangladesh Bank has put a five-year repair plan in front of parliament for a default book that now defines the banking system. Non-performing loans stand at about Tk 6.06 lakh crore, roughly a third of all credit the banks have disbursed. The 13-point roadmap was presented to the parliamentary standing committee on finance on 5 October.

That ratio is the story. In a working system, bad loans are a cost of lending. At a third of the book, they are the book. Every new loan has to be priced, provisioned and explained against a stock of failures that large. Private-sector credit has already slowed to a crawl — about 4.75 percent in August — and the central bank has kept saying liquidity is not the binding constraint. Borrowers who can pay are not lining up, and banks that can lend are not sure the next file will be repaid.

The roadmap splits the work into three clocks.

In the short term, Bangladesh Bank wants each bank's largest defaulters named as a recovery target, not a general squeeze on every small loan. The balances that move the ratio sit with a relatively small number of borrowers. A campaign that chases those names can change the headline number. A campaign that only tightens forms for everyone else will not. The central bank has also tied this phase to faster recovery action, on the argument that files already classified as bad should not sit untouched while new rules are drafted.

The medium-term steps are about disclosure and accounting. Lists of wilful defaulters would be published, so a borrower who has the money and will not pay is no longer only a line in a classified report. Provisioning rules would be rewritten so losses cannot remain unrecognised. That second point is less visible and more important. A default ratio near one-third is partly a recognition problem: loans that should have been called bad earlier were not. If provisioning is tightened without new capital behind it, some banks will look worse on paper before they look better in cash.

The long-term piece is structural. Exposure limits would apply across the system, not inside one bank's balance sheet, and recovery law would be strengthened. The logic is simple. A sponsor who is already large at five lenders should not be able to become larger at a sixth. Single-borrower caps at one bank have not stopped group exposures from spreading across the industry. A system-wide cap is the rule that would have to change that, and it is also the rule most likely to meet resistance from the borrowers it is written for.

Beside the default stock sits a second hole. Twenty-two banks hold about Tk 2.54 lakh crore in accumulated losses. Twelve have already taken Tk 84,946 crore in liquidity support. Bangladesh Bank's line is that the system is not short of liquidity overall. Cash is uneven. Some banks have deposits they cannot turn into sound loans. Others need support to stay open. Weak governance and thin provisioning sit between the two. A bank can be liquid and still unable to lend if the last cycle of related-party and large-borrower credit is what produced the losses.

That is why a committee paper is not a recovery. The near-term test is whether the top-defaulter lists produce cash, rescheduling that is actually paid, or cases that move. The medium-term test is whether published names and tighter provisioning change behaviour, or only the disclosure. The longer test is whether a borrower can still shop the same exposure across the system after the cap is written into the rules.

Until one of those happens, Tk 6.06 lakh crore remains a stock of unpaid credit, and the 13 points remain a plan for collecting it.