Take stern action to check high NPL

Bangladesh Bank’s (BB) lack of independence is responsible for the high amount of non-performing loans (NPLs) — which has increased by over three times in the last 10 years — in the banking sector, experts said.

Their observation came during a dialogue titled “Economy in crisis: What can the action plan do?” organised by the Centre for Policy Dialogue (CPD) at the BRAC Centre Inn in Dhaka on Saturday.

Dual regulations by the Financial Institutions Division and BB, flexibilities given to defaulters by BB, bank licences given arbitrarily to crony capitalists and recapitalisation of banks by the government were also responsible for high NPLs, as per the presentation made at the dialogue.

The presentation paper said that appointments of bank directors — often based on political connections, loans sanctioned on political grounds, rescheduling of loans despite the poor record of repayment, writing off loans to reduce the tax burden and clean balance sheets of banks, and weak internal control and compliance risk management of banks played roles behind the high number of NPLs as well.

According to BB data, the defaulted loan amount was Tk 42,725 crore at the end of 2012.

After 10 years, the country’s NPLs stood at Tk 1,34,396 crore until the end of September, said the latest BB data. Apart from showing a significant year-on-year increase of 32.86 per cent, this figure is also the highest since Bangladesh achieved independence in 1971.

However, the actual amount will be much higher if loans in special mention accounts, loans with court injunctions and rescheduled loans are included.

The amendments to the Banking Company Act in favour of vested quarters, weaknesses in the Financial Loan Court Act, loopholes in the Bankruptcy Act, delays in the judicial process, the long backlog of cases, and an insufficient number of judges dealing with loan cases were also responsible for the high number of bad loans in the banking sector, showed the presentation.

CPD recommended that BB’s autonomy should be upheld in line with the Bangladesh Bank Amendment Bill 2003.

It also recommended that the recapitalization of poorly governed commercial banks with public money should be stopped, the exit policy for troubled banks should be formulated by protecting depositors’ money, and a single individual or group of individuals should not be allowed to obtain majority ownership of more than one commercial bank.

Policy Research Institute of Bangladesh Executive Director Ahsan H Mansur said the support for weak and problem banks should be stopped because that would not lead to any effective result.

The authorities and regulators should take strict actions against the banking regulations, he added.

Former BB governor Salehuddin Ahmed said the policy actions taken by the regulator have been soft and dull. “No change will come in the banking sector if strict actions are not taken.”