NPLs big challenges for banking sector

It is very depressing that the country’s non-performing loans (NPL) and default loans are yet to be arrested. These loans are not only weakening the banking sector they are also affecting the entire economy badly. Even bankers themselves are tired of tackling stuck loans. They are now seeking help from the government and central bank. The issue has now emerged as only the biggest challenge for the banking sector in recent years.

Over the past four to five years rules in the banking sector has been relaxed, especially since 2019. The Finance Ministry did so to help big borrowers thinking that that they would repay bad loans. But it hasn’t yielded any result at all. After all those years the relaxed policy adopted by the Finance Ministry hasn’t come in handy for the government. The policy has not paid off. Rather after the relaxation the situation has worsened.

One of the obstacles in the way of recovering non-performing loans and default loans is the stay order by courts. Many businesses go to courts after their loans are classified. They secure stay order from the court to get their loans treated as non-classified. This practice of going to court and securing stay order eventually stands in the way of recovering bad loans.

The way it is practiced in our country it is not the same in other countries. In our country ownership of banks comes from private and business house that is not the case even in India. Our country needs major reshuffling to ensure the corporate governance. Bankers too are saying so. Now they are more desperate to change the scenario in the sector.

The Association of Bankers, Bangladesh (ABB) on May 22 held a press conference in this regard. At the press conference they voiced their concern about the issue of growing NPLs and default loans. The picture they revealed showed again the enormity of the crisis. According to the speakers, the amount of default loans in the banking sector increased by 16.8 per cent year-on-year to Tk1, 20, 656 crore in 2022.

The ratio of the defaulted loans accounted for 8.16 per cent of the outstanding loans as of December last year, up from 7.93 per cent a year ago. The extent of troubled assets is obscured by lax regulatory definitions and reporting standards, extended forbearance, as well as weak supervisory enforcement, according to the World Bank. Published NPL statistics do not reflect internationally accepted definitions of non-performing exposures, it said.

However, the brighter side, according to them, is that things are improving from the condition that the banking sector faced following the Ukraine-Russia war, the exchange rate volatility and commodity price hike. The overall liquidity situation has improved. We know that the situation can’t change overnight. After a long period of volatility in the world economy the small economy like ours needs time to overhaul its entire economic system.

We also echo the bankers’ view that a big social commitment and huge investment is the key to improving the legal framework of the non-performing loan resolutions. Both the trade gap and deficit in the current account have already declined considerably. We are hopeful that the overall economic situation will improve very soon.

As multilateral lenders are coming forward and disbursing loans to Bangladesh pushing up the foreign exchange reserve, we hope, thing will turn for the best.