Banking sector needs 5–10 years to recover from NPL crisis: BB governor

The banking sector will need at least five to ten years to recover from the mounting non-performing loan (NPL) crisis, Bangladesh Bank Governor Ahsan H Mansur said today.

Discussing the current state of the financial system at an economic conference at Pan Pacific Sonargaon Dhaka, he said the true scale of bad loans is now seen because of stricter loan classification rules.

Mansur said that while official figures had long indicated that NPLs hovered around 8 percent, independent assessments showed a far more alarming situation.

"Two years ago, my estimate was that the sector's NPL ratio would be around 25 percent. But the latest figures show it has already reached 35 percent and could be slightly higher," he said at the event organised by Bonik Barta, a national Bangla daily.

A default rate exceeding one-third of total loans poses a severe challenge, he added.

"This means banks are essentially operating with only two-thirds of their asset quality intact. It's not a small issue; it's a structural risk that will continue to strain the sector."

The governor warned that the crisis cannot be resolved quickly.

"We believe the NPL situation will stabilise around this level. After that, it may start to decline gradually. But a full recovery will require five to ten years of sustained reform and discipline."

He said the burden of high NPLs will continue to weigh on lending capacity, investment flows, and overall financial stability unless governance improves across the sector.

Turning to the external sector, Mansur expressed a sense of early relief about the increased opening of letters of credit (LCs) for the import of essentials ahead of Ramadan.

"Last year's Ramadan was the most difficult period for managing foreign exchange liquidity. But this year, we are not seeing signs of stress," he said.

All import LCs for Ramadan essentials have already been opened, while LC openings for a wide range of products have risen significantly compared with the same period last year.

"Imports have increased, showing double-digit growth this month. Yet even then, there is no exchange rate pressure now," he added.

At the event, AK Azad, managing director of Ha-Meem Group, and BIDS Director General AK Enamul Haque also spoke.