Bangladesh risks growth by not confronting bad debt

Subject

Bad debt in Bangladesh's banking sector.

Significance

The High Court last month stayed until June 23 a circular issued by the Bangladesh Bank, the central bank, that appeared to benefit borrowers who had defaulted on loans from the country's banking system. Meanwhile, Bangladesh registered 7.9% GDP growth in the fiscal year ending June 2018.

Impacts

• The government will dismiss worries about a potential growth slowdown, pointing to forecast GDP growth of 8.1% in 2018/19.
• The Bangladesh Bank's circular would hurt banks already burdened with losses because of provisioning against bad debt.
• Banks may try to reduce their exposure to single borrowers.