Challenges of the banking sector in Bangladesh: Several challenges have been curbed the banking sector. Liquidity crisis, default loans, absence of good governance in the banking sector is now a hot topic. Total defaulted loan is approximately 10 percent of total advances. This is just horrible for the growth and development of the banking sector.

State-run banks are fervently rescheduling loans with a view to flattering their true financial health. In 2017, Sonali, Janata, Agrani, Rupali and BASIC rescheduled loans amounting to about Tk 5,000 crore, in contrast to Tk 3,300 crore a year earlier, according to data from the central bank. Janata regularised the highest amount of loans: Tk 1,433 crore. As a result, the bank's default loan ratio came down to 14.10 percent at the end of last year from 16.14 percent in 2016. The bank's other financial indicators though deteriorated during the course of 2017. At the end of last year, it had a capital shortfall of Tk 161.48 crore, which was Tk 278 crore surplus in the previous year. Janata's net profit too plummeted 1.6 times to Tk 96.77 crore in 2017 from Tk 260.55 crore from the previous year. Agrani rescheduled the next highest amount of loans in 2017: Tk 1,288 crore. In 2016, it had rescheduled Tk 540 crore.

Defaulted and written-off loans have simultaneously been increasing the recent years on the back of banks' failure to prevent scams. Many banks tend to write off large amounts of default loans in the final quarter of a year to show a clean balance sheet. It is an unethical practice. The banks disburse the loans by taking deposits from general clients, meaning the depositors' money is not ultimately showed in the banks' financial statements due to the practice. Written-off loans are like uncollectible loans - the recovery of such loans is highly difficult. Banks' writing off loans to clean up balance sheets is a common practice globally.

The recovery of such loans has become almost insurmountable as banks do not keep adequate collateral or take proper documentation from borrowers. For instance, some unscrupulous borrowers kept the same property as collateral in different banks. The disbursed loans have subsequently become defaulted and were written off. But a strong judicial system will help banks recover the written-off loans from defaulters.

Recommendations for reducing non performing loans:

The non-performing loans of the state owned commercial banks and private commercial banks continue to soar. According to the latest central bank data, the volume of the non-performing loans or default loans in the banking sector is now Tk. 800 billion. Such non-performing loans of Agrani Rupali, Sonali, Janata, BASIC, BKB, RAKUB & BDBL stood at Tk. 491.12 billion at the end of March 2018 which is 14.88% more than that of the previous quarter. Of the eight state owned commercial banks, Sonali Bank had the highest amount of default loans at the end of March Tk. 143.05 billion. It was followed by Janata Bank and Agrani Bank Tk. 970.2 billion and Tk. 567.6 billion respectively.

To get rid of the bulk amount of non-performing loans in the banking sector, banks normally keep requisite provisions against their unclassified and non-performing loans from their operating profits in a bid to reduce financial risks. To expedite the loan recovery process, the bank should develop an in-build capacity. The banks may consider appointment of loan recovery agents. But it will not work if the banks sanction a huge amount of loan even after knowing that those loans would became classified. As many bank officials got involved in major irregularities while sanctioning these loans, so it primarily seems impossible to get rid from this loan default culture. But this bad culture can not go on for the longer period. So the central bank should give a strict timeframe to the banks to recover the amount from the defaulters. They should not be allowed to rescheduled or restructure the loans if they fail to recover the amount within the given period.

Besides those above mentioned measures, the government should come forward to mitigate the non- performing loans in the banking sector. By this process, government should stop recapitalizing the banks which are in danger as it has not brought any improvement in the bank's financial health. All state-owned public and private commercial banks should be forbidden from sanctioning fresh loans to habitual defaulters.