In our student life, we studied a population theory called ‘Malthusian theory’ propounded by economist Thomas Malthus. It explains that in a country, food supply grows at an arithmetic rate while population growth increases at a geometric progression.
Arithmetic progression means growing at a constant rate (such as 1, 2, 3, 4), while geometric growth means exponential rise (such as 2, 4, 8, 16). According to Malthus, at geometric progression, the entire population of a country will be doubled within twenty-five years if some special measures are not taken.
The theory I learnt four decades ago now seems to me more appropriate in defining the NPL (non-performing loans) growth in Bangladesh.
A local English daily has published news on the BB (Bangladesh Bank) annual report revealing a very alarming situation of NPL. According to the report, total NPL has accumulated to BDT 6.44 lakh crore by September 2025. The country’s total NPL has registered a sharp rise of BDT 4.98 lakh crore during the last one and a half years, which is unprecedented.
Additionally, some banks’ individual NPL has accumulated to 75%-85%, which implies that the entire outstanding loans, excluding loans against cash collateral of those banks, have turned impaired. More importantly, total disbursed loans of the country’s banking sector have amounted to BDT18.03 lakh crore, of which BDT6.44 lakh crore turned NPL, representing 35.73% bad loans, which was 20.20% last December. How a country’s banking sector can survive with a massive amount of NPL is a big question.
People commonly discuss worsening business and economic condition of the last one and half years particularly after the political change when the businessmen have been passing the most difficult and adverse situation to keep their business running. In fact, the businessmen’s hardship and struggle started five years back when the world economy fell into a pandemic-ridden recession.
As soon as the economy and businessmen came out of that situation, Russia-Ukraine war broke out, what resulted in high inflation and acute dollar crisis leaving the country’s businessmen in the severe crisis. Thereafter, political turmoil erupted, leaving the country’s business community in the worst situation. There is a linear relationship between business and loans, because if business runs well, the loans remain in good shape, or vice versa.
The business community has been passing through the most difficult and adverse situation during the last five years, when their sales, revenue and cash flow have been severely impacted, forcing most of them to fail debt servicing, which might have caused significantly rising NPL. In order to cope with the evolving situation, the govt. has taken some measures, including BB’s policy support, which has so far been confined within a bureaucratic bottleneck and thus failed to reach most businessmen.
Secondly, abruptly applying stringent loan classification rule as prescribed by IMF, might have backfired in determining country’s NPL. According to IMF prescription, BB has revised criteria for assessing loans for which, the borrowers are treated defaulters immediately after missing payment deadline. Obviously, this is the standard condition applied in determining the status of loans across the world, but this standard policy works well when normal and standard conditions prevail in the economy. If the situation is not normal, standard practice will not produce any result.
Enormously high volume of NPL in our country’s banking sector is the result of many factors, which include, improper treatment of NPL since beginning, wrong approach of approving loans, lack of standardising risk management and loan operation with complete digital approach, following defective CL in determining NPL, provision deficit and lack of practice in writing off impaired loans, so-called rescheduling, disbursing loan without appropriate match with borrowers’ time and cashflow, politically influenced loans, gross irregularity, Bank’s Boar of Director’s utter failure and corruption, the role of incompetent MDs, executives and officers, failure of BB’s proper guidance, oversight and standardising banking sector, replicating foreign consultants’ as well as IMF’s prescriptions without considering the situation in Bangladesh, and not properly educating the borrowers about the benefit of proper debt servicing.
Needless to say, today’s mammoth amount of NPL is the cumulative outcome of the last four decades’ mess, which can be neither resolved nor streamlined overnight by applying any sudden standard method. This is, of course, an alarming and unprecedented problem in the country’s banking sector, which requires a very comprehensive and detailed long-term programme to address the situation.
BB Governor has said in an informal discussion that country’s NPL will improve within five to ten years, but he did not elaborate. How this will happen is not understandable to us, because there is no magic in BB’s hand to bring such improvement.
We clearly understand that the country’s NPL has already reached an out-of-control situation. Because of the massive amount of NPL, the country’s banking sector is almost in a bankrupt situation, which, if not arrested and turned back immediately, will cause the country’s NPL to continue to rise faster than geometric progression, and its eventual consequences will be dire and irreparable.
There is no shortcut way, but it needs a special long-term programme with an estimated 20/25-year timeframe, involving many committed, dedicated and professional bankers and experts. I have written many articles explaining how this can be done with reference to some countries, so there is no need to repeat.
The writer is certified anti-money laundering specialist and banker based in Toronto, Canada.
