RMG, textile: Top export sectors among major loan defaulters

The readymade garment (RMG) and textile industries, two of the country's largest employers and export earners, are also among the biggest defaulters on bank loans, according to the latest Financial Stability Report of the Bangladesh Bank.

The gross non-performing loan (NPL) ratio stood at 26 percent in the RMG sector and 25 percent in textiles in 2024, according to the report.

Only shipbuilding and leather have higher rates, both at 39 percent.

The gross NPL ratio measures the share of defaulted loans in total loans. For the leather industry, the 39 percent figure means Tk 39 of every Tk 100 borrowed has turned sour.

By comparison, construction has an NPL ratio of 24 percent, transport 20 percent and agro-based industries 14 percent. Pharmaceuticals, agriculture and housing are the best performers with NPL ratios of 6, 11 and 12 percent, respectively.

Despite these repayment problems, the RMG sector remains the backbone of the economy.

In fiscal year (FY) 2024-25, it exported goods worth more than $39 billion, accounting for 84 percent of national export earnings, according to the Export Promotion Bureau (EPB).

The sector also employs around 40 lakh workers, and most of them are women.

Business leaders and bankers say smaller firms are carrying the heaviest burden of defaults as they struggle with the energy crisis and global headwinds.

"Large companies are doing well, but small firms have been struggling for several years," said Anwar-ul Alam Chowdhury, president of the Bangladesh Chamber of Industries.

Chowdhury, a former president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said big exporters can negotiate lower bank interest rates and enjoy advantages in shipping and logistics, giving them a buffer against global price pressures.

But smaller firms, with less bargaining power, face higher overhead costs and greater financial stress, he commented.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank (MTB), said there are multiple factors behind the high NPL ratio in the apparel sector.

He said the industry faced several issues after the Covid-19 pandemic that hit earnings and, in turn, loan repayments.

Citing an example, he said his bank financed a firm that struggled with energy shortages for a year.

"Later, it became nonperforming. Many factories struggle with this. Sometimes, they depend heavily on loans. Although large firms are doing well, relatively small firms sometimes struggle," added Rahman, a former president of the Association of Bankers Bangladesh (ABB).

The pressure is evident in stock market performance.

Of the 58 textile and garment companies listed on the Dhaka Stock Exchange (DSE), 25 are junk stocks and 17 fall into the B category for low performance.

This means more than 72 percent of listed companies in the sector are struggling to turn a profit.

M Masrur Reaz, chairman and CEO of local think tank Policy Exchange of Bangladesh, said the apparel industry has endured a difficult period since the pandemic due to sluggish global demand.

He said the textile sector, which is highly dependent on energy, has also suffered from power shortages, forcing many factories to run at only 40 to 50 percent capacity.

"Close to 300 companies have become financially distressed in the last couple of years, and the BGMEA is now working on an exit policy for them," Reaz said.

He added that shipbuilding has been in a tight spot for a decade, hit by the global financial crisis, Covid-19 and later the Russia-Ukraine war.

For the high NPL ratio in the leather sector, the economist blamed the country's export compliance challenges.

"These data on high NPL ratios across major sectors deserve urgent focus," Reaz said. "If the major export-earning sectors remain in poor health, both export performance and job creation will be affected."

He called on the government to analyse sectoral policies in both global and local contexts to find out why these large and important industries are suffering.

"An exit policy should be launched for sick companies, while some can be restructured," he said.