Defaulted Loans Have Risen From Tk 22,000 Crore to Over Tk 600,000 Crore, Reforms Need Five More Years: MTB MD
Syed Mahbubur Rahman, managing director of Mutual Trust Bank (MTB), has said defaulted loans in the country once stood at Tk 22,000 crore and have now exceeded Tk 600,000 crore. He gave the assessment on the economy, banking reforms and the recovery of laundered money on the occasion of the bank's 27th founding anniversary.
He said the economy had been heading in a bad direction for a long time. The Covid-19 pandemic in 2020, followed by the Russia-Ukraine war and conflict in the Middle East, delivered one shock after another. But the banking sector suffered the biggest damage in the past 17 years. The situation worsened in particular after the forcible takeover of Islami Bank in 2017.
According to him, 70-75 percent of the defaulted loans were taken from 10-12 banks by government and politically connected people. As there is not enough collateral against those loans, the prospect of recovering a large amount of the money is low.
He identified the energy crisis as another major problem for the economy. No effective initiative was taken for gas exploration in the country for a long time. GDP and private-sector credit growth were shown artificially, but there was no accountability for where the loan money went.
As an example, he cited the Dhaka-Gazipur Bus Rapid Transit (BRT) project. After thousands of crores of taka were spent, it emerged that its design itself was flawed, which is why the project was recently cancelled. The economic benefit of building the Karnaphuli Tunnel has also not yet arrived. No one was held accountable in these cases.
Syed Mahbubur Rahman said money laundering created a severe foreign-currency crisis towards the end of the last government and reserves kept falling. Employment did not grow much either. During the interim government, Governor Ahsan H Mansur took various reform initiatives after assuming office. That stabilised the dollar market. But completing those reforms will take five more years. The benefits for the economy may come after that.
On Bangladesh Bank's new Tk 62,000 crore stimulus package, he said the whole economy will not turn around through the banking sector alone. The revenue sector is one of the country's main weaknesses. The tax-to-GDP ratio has fallen below 7 percent. Meeting operating expenses from the government's own income has become difficult.
He said foreign direct investment has fallen, project implementation has slowed and access to concessional loans has shrunk. As a result, the government's borrowing costs from both domestic and foreign sources have risen. Uncertainty over energy supply to factories is also at its peak.
On remittances, he said about 30 percent of the country's remittances come from Saudi Arabia. If that country's economy slows, there could be major pressure on the balance of transactions. Although Bangladesh Bank's stimulus package is timely, banks need two to three months to vet borrowers and prepare the necessary documents. Loans therefore cannot be disbursed overnight.
On the government's priorities, he said that to revive the economy the government must identify eight to ten main drivers, including increasing local investment and exports and exploring for gas quickly, and focus on them. If domestic investment does not rise, investment cannot be brought in through roadshows abroad.
He said that while using 50-60 percent of floating LNG terminal capacity is normal worldwide, Bangladesh is taking a risk by operating at 80-90 percent capacity. A major disruption could occur at any time. He also spoke of identifying 10-20 countries important for foreign trade and remittances.
On bringing back laundered money, he said work is under way to engage five international law firms to identify the money and bring it back. They will work on a 'success fee' basis — they will take a fee from the money only if they can recover it. Although the process is long-term, it will send a message to the culprits that they cannot embezzle money and live comfortably abroad.
On deposit interest, he said if there is no new investment or loan demand, what will a bank do with extra deposits? Interest rates on government treasury bills have also fallen to 8 to 9.5 percent. His advice to ordinary people is not to keep money in weak institutions in the lure of higher interest.
Outlining MTB's own plans, he said the bank's deposits were Tk 19,000 crore around 2019-20 and have now risen to Tk 33,000-34,000 crore. Earlier, 89-90 percent of its loans were large corporate loans; that has been brought down in a planned way to about 80 percent. The target is to reduce corporate loans to 70 percent over the next five years and raise the share of retail and CMS sector loans to 30 percent.
Drawing on 37 years in banking, he said that from the 1990s onwards he had seen a growing market for 37 years. But this is the first time he has seen the country's economy face a real recession. As the cost of living rises, many in the middle class are falling below the poverty line.
On the future, he said major consolidation in the banking sector is inevitable in the coming days. Although there are now 57 banks in the country, not all of them will survive. The top 20-25 banks are enough for the country's economy. He believes that if strong policymaking and good governance are ensured, it will be possible to overcome the crisis and return to stable growth.
