How tough can Bangladesh Bank be with wilful defaulters?

Bangladesh Bank's newly unveiled measures to rein in wilful loan defaulters—as part of a roadmap to bring down such loans to less than 8 percent by June 2026—may deliver results if properly enforced. But that's a big "if" given the central bank's past performance in this regard. On paper, its plan appears robust as it outlines stringent measures aimed at both banks and borrowers. Banks, as per the new guideline, will have to form a dedicated unit called "wilful defaulters identification unit" by April 9, and must carry out all related activities through it. The guideline also details the criteria for identifying wilful defaulters as well as punitive measures for those found guilty.

These punishments include bans on foreign travel and restrictions on trade licences. Wilful defaulters may also have trouble with the registration of moveable and immovable properties, and cannot become bank directors for a certain period of time. They will not be eligible for any national award, or any interest waiver and loan rescheduling facilities either. The problem with such measures, however, is that they are seldom, if ever, enforced. After all, what enables these politically connected businessmen to get their hands on loans in the first place also enables them to get out of any complication thereof. If it didn't, we'd have seen more action on the relevant clauses of the Finance Companies Act, 2023 that also provide travel bans and trade licence restrictions as well as criminal prosecutions.

As things stand, the banking sector stands at a critical junction. Defaulted loans soared to Tk 145,633 crore by the end of 2023, accounting for nine percent of all outstanding loans. The health of 38 banks also deteriorated between December 2020 and June 2023, according to a recent estimate, owing largely to mismanagement, loan irregularities and scams. The situation has reached such a point that the central bank has threatened to force "mergers and acquisitions of weak banks" if the latter fail to do so voluntarily by December this year. A lot of the problems facing our banks will disappear if we could just reduce the scope for habitual defaulters.

So, while we appreciate Bangladesh Bank sending the message that reckless lending practices will not be tolerated, we must recognise that the true challenge lies in ensuring consistent compliance with its guidelines across all banks. There are also concerns about rescheduling or writing off bad loans to show improved performance, which must be addressed. Regulators must go tough on wilful defaulters this time.