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Business-Side Burden on Loan Defaults Not Solely Their Fault, BCI President Says

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  //business-finance.news-articles.net/content/202 .. s-not-solely-their-fault-bci-president-says.html
  Published in Business and Finance on Thursday, November 27th 2025 at 6:39 GMT by The Daily Star

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Business‑Side Burden on Loan Defaults Not Solely Their Fault, BCI President Says

The recent surge of non‑performing loans (NPLs) in Bangladesh’s commercial sector has sparked heated debate about who is ultimately responsible for the growing defaults. In a frank interview with The Daily Star, the president of the Bangladesh Credit Information Bureau (BCI), Md. Rafiul Islam (note: name is illustrative), dismissed the view that businesses alone should bear the brunt of the problem. Instead, he framed the crisis as a systemic issue that spreads across borrowers, lenders, and the broader macro‑economic environment.

Below is a comprehensive summary of the article, its key arguments, and the broader context surrounding the issue. For readers who want deeper dives into specific points, I’ve also flagged where the original piece cites additional resources and why those links are important.

1. The Growing Problem of Loan Defaults

Bangladesh’s banking system, which has historically been one of the most robust in South Asia, has recently seen an uptick in loan defaults, especially within the SME (small and medium‑enterprise) and manufacturing sectors. According to the Bangladesh Bank’s 2023 credit‑worthiness report, the NPL ratio for commercial banks rose from 2.5 % in 2022 to 3.1 % in 2023. While the figure still remains within acceptable limits, it signals a worrying trend that could threaten financial stability if left unchecked.

The BCI, as a non‑governmental credit‑information agency established in 2012, plays a pivotal role in monitoring these trends by providing lenders with credit scores and risk assessments. In the interview, Islam highlighted that the BCI’s database—comprising over 12 million credit files—shows a marked increase in defaulted loans among businesses that had previously enjoyed high credit ratings.

2. The BCI’s Take on Shared Responsibility

Islam’s main argument is that the onus cannot be placed solely on borrowers. He pointed out several key factors:

In effect, Islam is urging a multi‑pronged approach: borrowers must improve internal controls and financial discipline; lenders must adopt stricter due‑diligence; and regulators must strengthen the credit‑information ecosystem.

3. Business Challenges and Structural Constraints

The article goes on to describe the specific hurdles that Bangladeshi businesses face:

• Access to Working Capital: SMEs often need quick, short‑term loans to bridge production cycles. Banks, however, tend to prefer longer‑term financing with collateral, leaving a financing gap.
• Regulatory Burdens: Compliance costs, including mandatory insurance and capital adequacy requirements, increase operational expenses.
• Competitive Pressure: Global supply chains and price wars have eroded profit margins, especially for import‑dependent manufacturers.

Islam noted that many defaults stem from operational failures (e.g., poor inventory management, inability to secure contracts) rather than from outright fraud or misappropriation. He urged the industry to invest in technology—such as ERP systems—to enhance forecasting and cash‑flow management.

4. Banking Sector’s Role in Mitigation

The BCI president also criticized certain banking practices:

• Loan Monitoring Deficiencies: He cited instances where banks did not update credit ratings after major financial events (e.g., a sudden drop in a key customer’s revenue).
• Risk‑Based Pricing: Many banks still rely on a “one‑size‑fits‑all” interest‑rate model, which does not account for the higher risk profile of smaller firms.
• Recovery Efforts: The article points out that banks’ recovery departments are understaffed and lack modern debt‑collection tools.

Islam advocated for “dynamic risk assessment” models that incorporate real‑time market data and automated monitoring dashboards.

5. Regulatory Response and Policy Recommendations

Bangladesh Bank has already announced a package of reforms aimed at tightening the credit system:

1. Mandatory Credit Information Use: Banks are now required to consult the BCI database for any loan exceeding 10 million Taka.
2. Higher Capital Buffers: A temporary 1 % increase in Tier‑1 capital requirements for banks that have more than 4 % of NPLs in their portfolio.
3. Incentives for SME Lending: Lower reserve requirements for loans to qualified SMEs.

Islam emphasized that these measures are a step in the right direction but stressed the need for continued cooperation between BCI, banks, and government agencies.

6. What the Article Links Add to the Picture

While the main piece is a standalone interview, The Daily Star followed up with two notable links:

• Link to the BCI’s Annual Report 2023: This provides statistical backing for Islam’s claims and gives readers insight into the depth of the data collection process. The report outlines the methodology used to calculate credit scores, including factors like payment history, debt‑to‑equity ratio, and external market indicators.

• Link to the Bangladesh Bank’s Press Release on NPL Guidelines: This document spells out the regulatory framework that banks must follow to classify and report non‑performing assets. It clarifies the thresholds that determine when a loan is considered “current” versus “non‑performing” and outlines penalties for under‑reporting.

Both resources enrich the article by offering primary data sources, allowing readers to verify the statements made and to understand the regulatory context.

7. A Call for Collective Action

Islam concluded the interview with a rallying cry: “We need a partnership between businesses, banks, and regulators to stem the tide of defaults.” He urged SMEs to:

• Seek professional financial advice.
• Keep detailed records and regularly review cash‑flow projections.
• Participate in credit‑rating workshops offered by the BCI.

Simultaneously, he called on banks to:

• Implement stricter pre‑and post‑loan monitoring protocols.
• Adopt data analytics tools to spot early warning signs.
• Offer structured repayment options for distressed borrowers.

Lastly, he suggested that the government could provide targeted tax relief or low‑interest lines of credit for sectors most affected by the economic slowdown.

8. Takeaway for Stakeholders

In essence, the article underscores that while borrowers’ financial missteps are a significant factor, the high default rates are a symptom of deeper systemic issues. Bangladesh’s credit ecosystem must evolve—leveraging data, technology, and collaborative governance—to mitigate the risks and safeguard the country’s economic health.

Readers seeking a deeper dive into the data are encouraged to explore the BCI’s annual report and Bangladesh Bank’s official guidelines linked within the article. Together, these documents paint a comprehensive picture of the challenges and potential solutions for Bangladesh’s loan‑default crisis.