Bridging the Policy Gaps in Addressing Non-Performing Loans in Bangladesh
Abstract
The management of non-performing loans (NPLs) has become a major risk to the financial stability of Bangladesh and credit growth, investor confidence, and macroeconomic stability. This paper explores the policy, governance, and regulatory ambiguities that keep the NPLs thriving even after reforms. We used qualitative methodology and a total of 23 in-depth interviews (IDIs) conducted with the six groups of stakeholders, including industry owners/managers, credit authorities, bank board members, auditors, industry associations, and regulatory authorities. The respondents were chosen using non-probability convenience sampling. A case study of a scheduled bank was involved in the study to conceptualize systemic and political aspects of loan defaults. The results indicate that the enforcement and accountability mechanisms have been compromised or misused. In addition, the political interference in the loan disbursement and recovery has promoted willful defaulting behaviors, and institutionalization of governance failures. The structural changes that the respondents highlighted were automation of credit monitoring, legal frameworks, transparent loan classification, and full regulatory autonomy of the central bank. The paper finds that in order to restore financial discipline in the banking sector and ensure the long-term sustainability of the banking sector in Bangladesh, it is necessary to bridge policy and governance gaps by institutional reforms, digital integration and depoliticized regulation.