BIBM Urges Digital Reform

A severe crisis has emerged in the country’s banking sector as a research report reveals that 40% to 50% of trade finance has now turned into non-performing loans (NPLs). More alarmingly, for banks that already have high overall default loan ratios, the NPL rate in trade finance exceeds a staggering 80%.

This alarming data was disclosed today, Wednesday (July 8), at a national workshop titled 'Trade Services Operations of Banks,' organized by the Bangladesh Institute of Bank Management (BIBM) at its auditorium in Mirpur, Dhaka.

In his presidential address, Dr. Md. Ezazul Islam, Director General of BIBM, stated, "To make international trade operations faster, safer, and paperless, it is the demand of the time to build a modern legal and digital infrastructure for electronic trade documents." He also emphasized the need for more effective measures to prevent trade-based money laundering and terrorist financing while maintaining the quality of customer service. He urged for increased coordination among Bangladesh Bank, scheduled banks, customs authorities, and all relevant stakeholders.

The research paper was presented by Dr. Shah Md. Ahsan Habib, Professor (Selection Grade) at BIBM. He highlighted that the pressure on asset quality in trade-related loan portfolios is already clearly visible. According to the study, the conversion of non-funded liabilities into forced loans is the primary reason behind this surge in NPLs. This trend is particularly evident in trade finance related to the import of capital machinery, cotton and other raw materials, sugar, fertilizer, fuel, and scrap vessels.

The study also pointed out a critical structural weakness in export financing. Almost all surveyed bankers agreed that the practice of opening Back-to-Back LCs without legally enforceable sales contracts is a major driver of defaults. Since Back-to-Back LCs are used to procure raw materials against export orders, any weakness or dispute in the underlying contract disrupts the self-liquidating nature of trade finance, turning it into forced loans.

The research paper was jointly prepared by a team including BIBM faculty members Tofayel Ahmed, Rahat Banu, Rajib Kumar Das, along with Mohammad Arafat Ali, Additional Director of Bangladesh Bank, and A.T.M. Nesarul Hoque, Executive Vice President of Mutual Trust Bank PLC.

The workshop featured prominent panel discussants, including Md. Ali Hossain Pradhania, Chairman of NRBC Bank PLC; Mahmudur রহমান, Deputy Managing Director of Islami Bank Bangladesh PLC; Syed Sazzad Haider Chowdhury, Deputy Managing Director of Prime Bank PLC; and Faruq Ahmed, Deputy Managing Director of City Bank PLC. During the open discussion, senior bankers and regulators proposed recommendations aimed at modernizing trade finance, improving risk management, and enhancing asset quality.

//DBTech/DPO/SMI//