Weaker taka, high interest rates strain private sector

A weaker taka, prolonged high inflation, and tighter monetary policy have placed increasing pressure on the private sector, according to business leaders.

Speaking at a seminar in Dhaka yesterday, they said the situation was worsened by political uncertainty and unreliable gas supply, further eroding investor confidence.

"Interest rates on bank loans have climbed from 9 percent to around 14 percent in 2025, which has saddled the private sector with an additional interest burden of roughly Tk 1.4 lakh crore," said Ashraf Ahmed, former president of the Dhaka Chamber of Commerce and Industry (DCCI).

He was presenting a keynote at the seminar titled "Current Challenges in the Banking Sector: Borrowers' Perspective".

Ahmed, now a director at DCCI, pointed to several other challenges facing the economy, including supply shortages, import restrictions, and soaring inflation.

He said gas shortages had slashed industrial output by as much as 50 percent, despite industries having the capacity to double production if energy supplies were stable.

Ahmed called for the restructuring and rescheduling of loans to help businesses recover, alongside reforms in banking governance to improve transparency and oversight.

He warned that a further rise in defaulted loans would limit credit flow to industries, depress investment, and weaken the private sector's backbone.

The business leader pointed out that 14 banks hold nearly 40 percent of the country's default loans, whereas 47 others report default rates between just 5 and 7 percent.

This, he said, indicates the problem is "not widespread but rather concentrated in a handful of institutions."

DCCI President Taskeen Ahmed said that by mid-2025, non-performing loans (NPLs) had ballooned to Tk 4.2 lakh crore, up from Tk 3.45 lakh crore three months earlier.

That now accounts for over 24 percent of total outstanding loans, posing serious risks to financial stability, investor confidence, and the country's credit profile.

He blamed the crisis on weak governance, poor loan recovery practices, and inadequate credit risk assessment.

As a result, borrowers now face tighter credit conditions, higher collateral requirements, and elevated interest rates.

Taskeen urged a coordinated policy response that brings monetary and fiscal strategies into alignment, aiming to rebuild business confidence and restore the flow of credit.

He also proposed extending the current loan classification deadline by six months to allow struggling firms to pursue recovery plans without immediately being labelled as defaulters.

At the event, Anisuzzaman Chowdhury, special assistant to the chief adviser, called for accountability on both sides of the lending relationship.

"We must protect the formal sector, or else the development of the informal sector will also be affected," he said.

Chowdhury questioned whether international lenders should take partial responsibility for the alleged corruption and mismanagement over the past 15 years, during which institutions like the International Monetary Fund (IMF), Asian Development Bank (ADB), and World Bank continued to support the former government without scrutinising how public funds were being used.

"Should the IMF and ADB not share responsibility for lending to a government where large-scale corruption occurred?" he asked.

Chowdhury compared the previous government's IMF loan to sending the economy into an "ICU."

He said that recovery from such a condition is rare. The country averted a full-blown crisis only because the old regime was replaced.

Md Ezazul Islam, executive director of the Monetary Policy Department at Bangladesh Bank, said most banks are now performing better and could consider easing interest rates slightly, especially for small and medium-sized enterprises.

He admitted that the past approach of fixing interest rates was flawed and stressed that rates should reflect market dynamics.

Last week, the central bank reported that foreign currency reserves had crossed the $25 billion mark for the first time in nearly three years. The central bank's focus on macroeconomic stability since last year has helped curb the erosion.

Hossain Khaled, managing director of Anwar Group of Industries and former DCCI president, said SMEs are vital to the country's supply chain and that difficulties faced by larger companies inevitably trickle down.

He called for a shift away from the traditional lender-borrower dynamic to a more collaborative, partnership-based model that provides tailored guidance and support.

Abdul Hai Sarker, chairman of the Bangladesh Association of Banks, blamed weak policies for the spike in loan defaults and sluggish recovery.

He said delays in legal proceedings, caused by a shortage of dedicated financial courts (Arthorin Adalot), remain a major bottleneck, and called for better coordination between policymakers and implementers.

He warned that unless borrowers feel secure within the lending environment, attracting fresh investment will remain a challenge.

Fazle Shamim Ehsan, executive president of BKMEA and managing director of Fatullah Apparels Ltd, criticised banks for denying credit facilities to reliable borrowers.

He said banks have grown increasingly cautious about raising credit limits because of the unstable exchange rate.

Mati Ul Hasan, managing director of Mercantile Bank PLC, described the banking sector as one of the hardest hit in recent times.

He proposed setting up asset management companies under public-private partnerships to recover a portion of defaulted loans.