The banking sector's defaulted loans soared 20.7 percent to Tk 145,633 crore in 2023 as both governance and accountability continue to get looser.

Defaulted loans now account for 9 percent of all outstanding loans, up from 8.16 percent a year earlier, as per the latest data from the Bangladesh Bank.

"It is a worrying situation that the defaulted loans increased by about Tk 25,000 crore in just a year," said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.

To put things into perspective, the total volume of bad loans in the sector was Tk 22,000 crore in 2008.

The bad loans have increased as wilful defaulters are on the rise, said Rahman, a former chairman of the Association of Bankers Bangladesh (ABB).

The slow loan recovery amid the economic slowdown is another reason for the growing trend of bad loans.

"Banks generally face liquidity pressure when defaulted loans rise, so the growing trend of bad loans will have to stop in any way."

The overall provisioning shortfall stood at Tk 19,261 crore last year, up 75 percent year-on-year.

Rahman went on to emphasise on strict execution of the roadmap announced by the central bank on February 4 to rein in the defaulted loans to a reasonable level and bring in good governance to the banking sector.

The banking regulator wants to reduce the bad loans to less than 8 percent of all outstanding loans by June 30, 2026 by implementing the roadmap.

The state banks' defaulted loans will be less than 10 percent and that of private banks will be under 5 percent.

The bad loan situation at the six state-run commercial banks is more alarming: at Tk 65,781.43 crore, defaulted loans now account for 20.99 percent of their disbursed loans.

Bad loans account for 5.93 percent of the 43 private commercial banks' total disbursed loans after the volume rose by Tk 14,543 crore to Tk 70,981.86 crore last year.

However, the defaulted loans at nine foreign banks rose by only Tk 153 crore to Tk 3,200 crore. The bad loans at the three specialised banks rose by Tk 960 crore to Tk 5,669.13 crore at the end of last year, BB data showed.

The discipline in the banking sector will be restored through the roadmap, said Selim RF Hussain, the MD of BRAC Bank and the chairman of ABB.

The actual volume of defaulted loans is upwards of Tk 400,000 crore if the Tk 250,000 crore loans that are pending against the cases in court and the Tk 65,000 crore loans written off are factored in, said Moinul Islam, economist and former professor of the University of Chittagong.

"It is very difficult to bring down the bad loans without any political commitment," he said, while urging the government to take punitive action against the defaulters.