Staff Correspondent

Adhering to conditions set by the International Monetary Fund (IMF) could lead the country’s total non-performing loans (NPLs) to exceed Tk 5 trillion, experts said.

They said that this risk has arisen from the IMF’s recommendations to redefine NPL classifications and align loan rescheduling policies with international standards.

Irregularities during the previous Awami League government in disbursing loans have significantly contributed to the rise in defaulted loans, further exacerbating this critical financial indicator.

"Fixing the economy requires comprehensive measures, not just tightening policies in one area. Policies that support business and production must be adopted to stabilize the economy," said Abdul Awal Mintoo, former president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI).

According to central bank sources, the IMF has called for stricter loan classification policies and recommended that rescheduled loans not be immediately categorized as regular. This requires urgent adjustments to existing policies, followed by official circulars, as per the IMF’s advice.

A Bangladesh Bank official said that currently, banks classify rescheduled NPLs as regular immediately after rescheduling, which contradicts global practices. The IMF has urged the implementation of Basel III standards, requiring a three-month probation period after rescheduling before loans can be classified as regular. Only if borrowers repay instalments on time during this period can the loans regain regular status.

The IMF has, however, appreciated recent policy updates from Bangladesh Bank, which stated that loans unpaid within their due period would be deemed overdue, and defaults would occur if payments remained pending for 90 days.

Following discussions with the IMF, the central bank finalized its updated NPL policies, instructing banks to prepare reports based on these guidelines starting in June. The new classification policies may come into effect as early as April, raising concerns about a sharp increase in reported NPLs.

As of September, NPLs in the banking sector had already reached a record Tk 2.85 trillion. Adding write-offs worth Tk 600 billion, unresolved loans in financial courts totalling Tk 2.78 trillion, and Tk 760 billion under stay orders, the real volume of bad loans may soon exceed Tk 5 trillion when calculated using international standards.

Selim RF Hossain, Chairman of the Association of Bankers, Bangladesh (ABB) and Managing Director of BRAC Bank, said, "The IMF had previously recommended implementing Basel III, but the former government failed to comply. The current government is taking steps to do so, which will strengthen the banking sector's foundation."

He added that recognizing these existing defaults under Basel III guidelines would not harm the economy, as they were already bad loans.

Mintoo also said, “The IMF’s conditions are beneficial, but not every country can implement all of them. Bangladesh faces numerous challenges across different sectors. Strengthening the economy requires more than just enforcing stringent policies in one area.”

He cautioned against hasty implementation of laws without understanding the broader economic context, emphasizing the need for pragmatic measures that balance regulatory compliance with business and trade growth.

An IMF delegation is currently in Bangladesh to assess compliance with the conditions tied to its $4.7 billion loan program. The team is holding meetings with the central bank, finance ministry, National Board of Revenue (NBR), and the Economic Relations Division (ERD) as part of this review.

Since the fall of the Awami League government in August following student-led protests, the new interim government has initiated various financial sector reforms. The IMF has reiterated its conditions to ensure compliance ahead of disbursing the fourth tranche of the loan program.