Distressed assets in banks likely to reach Tk11 lakh crore City Bank MD

Business Report:

Approximately Tk11 lakh crore of a total Tk18 lakh crore in outstanding loans in Bangladesh’s banking sector are now considered as distressed assets informed the City Bank Managing Director Mashrur Arefin on Sunday.

Mashrur Arefin explained that of these distressed assets, Tk4 trillion are classified as non-performing loans (NPLs). The remainder includes rescheduled loans, written-off loans, and loans that are currently performing but at high risk of default.

Moreover, at the end of December 2024 distressed assets in the country’s banking sector stood at Tk7.56 lakh crore, equivalent to 45 per cent of total outstanding loans, exposing the fragile health of the financial system, showed central bank data.

He made these remarks at a panel discussion during the seminar titled “Bank Crisis, Reforms & Regulations – The Implications on Bank Governance,” jointly organized by the University of Asia Pacific (UAP), University of Dhaka, and Germany’s OTH Amberg-Weiden.

Mashrur Arefin said, out of a total 60 banks in the country, only 7-9 can be considered international standard, while nearly 40 are substandard and about 15 suffer acute liquidity crises due to years of unchecked “looting.”

In some distressed banks, depositors face extreme hardship-large deposits are repaid only in token amounts monthly. Effectively, a bank run has taken place in these institutions, though stronger banks remain insulated and continue to enjoy the trust of foreign partners.

He commended the government’s efforts and noted, “The foreign exchange crisis has been largely resolved, with taka stabilizing after sharp depreciation and trade and current account balances turning positive. Consolidation is underway, with five banks set for merger, and some troubled institutions may recover due to strong brand credibility.

“The new Bank Resolution Act, introduced by ordinance, is another milestone-providing tools for mergers, creation of asset management companies to absorb toxic assets, and structured government intervention in failing banks.”

Arefin raises concerns over provisions in the draft Banking Company Act. He questions the blanket requirement for 50 percent independent directors on boards, arguing that this penalizes high-performing banks while failing to address the root problem-corruption by individuals.

The event featured detailed discussions on corporate governance in the banking sector, weaknesses in risk management and regulatory frameworks, and the urgent need for reforms.
At the Sohel RK Hussain, managing director of Bank Asia, pointed out that 95 percent of bank capital comes from depositors, while only 5 percent comes from directors. Despite this, in many cases, directors run banks as they please, often disregarding depositor interests. He stressed the need for strict action against such irregularities to restore discipline and governance.