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NPL is a threat to economic stability, |
The growing Non Performing Loan(NPL) appears to be a big concern. However, no detailed plan is set out, as demonstrated in electoral pledges by the parties to tackle the issue. Since economy is secondary issue,political reforms turn out to be primary concerns of politics. Meanwhile, the NPL situation has the potential to destabilize the value of Taka and may prolong the contractionary monetary policy, which means a higher monetary policy rate for a [prolonged] period.
What is worrying the NPL has long ago [crossed] the 30% mark of total loans,making true apprehension of the central bank. The ongoing management of the economy says govt has failed to attain the targets of inflation and NPL,set out by the IMF. Yet the Bretton-Wood institution is kind enough to furnish the credit packages as forex reserve keeps growing and exchange market is liberalized.
The NPL stood at Tk 4.2 trillion by the end of January-March quarter. State Banks account for Tk 1.46 trillion and private banks account for Tk 2.64 trillion of the NPL while the foreign banks account for Tk 32.38 billion. NPL was Tk 2.11 trillion by the end of June 2024,which was 12.56% of total loans. Look at the huge increase of NPL: from 12.56% in June ,2024 to more than 30% of total loans in June ,2025! (See Non Performing Loans Surge By Tk 74570 cr In Q1 As Hidden Rot Exposed", The Business Standard,June 15,2025.)
In USD, it is equivalent to $34.71 billion(assuming 1 USD=Tk 121).Could the next elected govt downsize it dramatically within its tenure? Popular govts are reluctant to pursue tight monetary policy. Even if they have firm commitment ,they may do it for 1 or 2 years. That means even if a govt committed to discipline the economy, they will have a time between 12 months and 24 months to fix the NPL. The rest of its tenure will be used to promoting policies to win the next election.
Magnitude of the problem lies in downsizing this $34.71 billion in just two years while NPL keeps growing. Failure to do that means govt has either to pump money into economy as the term " liquidity support to troubled banks" becoming increasingly popular or to raise taxes and let die some of the banks. If money [amounting] to half the size of NPL is injected into economy, Taka is going to plunge. Because capacity of our economy is not that strong to generate so much resources (worth $17 billion ,half of the NPL) in 12 or 24 months. That is an uphill task!
In my piece "Last Year's Extra Money", I highlighted that last year Bangladeshi economy generated around $2 billion worth of extra rice,$2.59 billion worth of extra RMG export and $4.7 billion worth of extra remittances. At the same time, we also witnessed extra losses from flash flood and political change. Now if we add FDI figure into it, the extra resources in 2024 becomes $10 billion (See"Last Year's Extra Money", published here on January 10,2025).
However, our external debt service payment is also growing. In 2022, the debt repayment was $2 billion and it rose to $2.67 billion in 2023 (source: Bangladesh Bank). According to some news reports, it crossed $3 billion last year. In another piece, I highlighted except agriculture, other sectors do not add much value to the economy. So the true size [of] the extra resources our economy generated last year is much lower than $10 billion. And minus the debt repayment ,it becomes even smaller.
Say $8 billion worth of extra resources will be created next year, then $9 billion worth of money will be introduced into economy in 2026 just to tackle the NPL for 24 months. The sheer size of liquidity support through printing money will deteriorate Taka's value against major currencies. And such deterioration may cause further inflation. And we are talking about half the size of NPL here! And there is other danger too!
Even if laundered money returns in disguise of remittances or export earnings, sheer size of it [will] cause inflationary pressure as this adds no value to the economy. Just money travelled back and forth.
And any volatility in the exchange rate of Taka will not bring the FDI. For the sake of FDI, we have to stabilize the exchange rate. And to bring vibrancy to the economy ,we have to contain the inflation.
So the growing NPL casts shadow over exchange rate of Taka. There should be clear roadmap on how to tackle the NPL. Otherwise, indiscipline economy will pose serious threat to the [economic stability].
