Uncertainty grows a month after Hasina's flight with more and more bad loans burdening banks
Bad loans worth two trillion taka (more than US$ 16 billion) are weighing on financial institutions, a number made public after the former prime minister’s departure. The technocratic government led by Muhammad Yunus is asking for patience because comprehensive reforms take time. Meanwhile, some clothing brands plan to move to countries where labour costs are lower.
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Dhaka (AsiaNews/Agencies) – Non-performing loans in Bangladesh’s banks have never been higher. According to the central bank, at the end of June default loans in the banking system stood at over two trillion takas, or US$ 16.8 billion, 12.6 per cent of all loans disbursed by banks.
They are called non-performing or bad loans because debtors, mainly businesses, can no longer repay.
This situation, insiders report, began to trickle out under pressure from the International Monetary Fund (IMF) in order to secure a .7 billion loan, coming to light after former Prime Minister Sheikh Hasina was forced to resign and flee to India as a result of anti-government protests led by students.
From 30 March to 30 June of this year alone, there was a shortfall of more than 290 billion taka (almost US$ 2.5 billion).
More than 30 per cent of non-performing loans were taken out with state-owned banks, compared to 7.9 per cent with private institutions, percentages that the Bank of Bangladesh wants to bring below 10 per cent and 5 per cent by 2026.
Several experts have expressed scepticism about the central bank's audits, noting that the real numbers on non-performing loans could be significantly higher than reported.
Selim R F Hussain, president of the Association of Bankers, Bangladesh (ABB), explained that, in terms of the classification of loans or provisioning, the previous Awami League government did not follow international standards.
It is likely that even in the next quarter, from July to September, there will be further increases due to the fall of the government – several business groups, experts added, obtained loans only thanks to political influence.
“It wasn’t benign neglect but a designed robbery of the financial system,” said Ahsan Mansur, the new governor of the central bank, who added that restructuring the system will take several years and funding from the International Monetary Fund.
This is yet another economic challenges for Muhammad Yunus, chief adviser in the new technocratic government, who will have to face in coming weeks the slowdown in global demand, the deterioration of relations with India (from which Bangladesh imports yarn for the clothing industry), and problems caused by climate change, like more severe flooding.
It is no coincidence that several prominent people from business and finance are in the new government, along with Yunus.
The Nobel Peace Prize winner, in a speech to the nation, asked his compatriots to be patient, even if it is not clear for how long. “I request everyone to be patient,” he said. “It is one of our objectives that public institutions regain public trust.”
Despite the promise of reforms, from the court system to the Electoral Commission (whose members resigned today), the situation continues to be tense in Dhaka and surrounding region.
In dozens of garment factories (crucial to the country’s economy), workers are still protesting for better wages.
Meanwhile, some major international brands have already announced plans to move production for the next season to other countries, especially Vietnam, which offers lower labour costs.
For its part, the interim government has not yet announced a date for the next elections.
The Bangladesh Nationalist Party (BNP), which was in opposition for 15 years under the increasingly authoritarian government of Sheikh Hasina, has called for the vote to be held as soon as possible, mindful that it could win by a large margin by leveraging on the general sense of dissatisfaction.
As time goes on, young people may be increasingly impatient, said analyst Michael Kugelman, director of the Wilson Center's South Asia Institute.
“What happens if the BNP, which has no formal role in the interim government, doesn’t get the elections it wants to see soon?” Kugelman asked. “Will it launch a movement? Will it trigger unrest?”
“That could pose new risks to law and order and deepen political uncertainty and volatility,” he added.
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03/09/2007
