Banks' NPL a curse for sustainable growth

ICCB calls for further efforts to combat the menace

The International Chamber of Commerce-Bangladesh has called growing non-performing loans (NPL) a curse for sustainable growth, urging the government to do more to combat the menace.

 The ICCB said until now, only limited action has been taken to penalise defaulters, curtail risks and strengthen bank management. “To tackle the sector's deep-rooted problems of corruption and poor risk practices, further efforts are needed,” according to an editorial in the current news bulletin of the chamber.

It said now that Bangladesh was on course to become a developing country, all efforts should be made to strengthen the banking sector, which is the backbone of the economy.

The chamber, in its bulletin for the January-March period, said the best way to meet the requirements and challenges of a developing country was to strengthen the capital and liquidity ratio of banks.

The NPL is an issue that is impacting the capital adequacy of the sector.

In Bangladesh, six state-owned commercial banks account for about a quarter of the total banking sector assets. They are supplemented by two state-owned specialised banks, 40 private commercial banks and nine foreign banks.

According to a Bangladesh Bank study covering 2012 to 2016, the average ratio of NPLs to total loans was about 27.10 percent.

It was 4.9 percent for private commercial banks, 6.5 percent for foreign banks and 22.56 percent for state banks.

The percentage of the classified loan to the total outstanding stood at 10.1 percent in June 2016, with private commercial banks accounting for 5.4 percent, state banks 25.7 percent and foreign banks 8.3 percent.

Until September 2017, the total banking sector loan amounted to Tk 752,730 crore, of which Tk 80,307 crore, or 10.67 percent, was bad debt.

If the restructured loans were included, the NPL goes up to 17 percent of the outstanding loans.

At the end of September, the state banks had a combined bad debt of Tk 38,517 crore, private banks Tk 33,973 crore, and foreign banks Tk 2,298 crore.

“Naturally, these high NPLs have affected the profitability and the overall capital to risk-weighted assets ratio,” said the chamber.

The ICCB said bad loans are routinely restructured to permit further lending to the same borrowers.

An average bank rescheduled bad loans of Tk 10,910 crore annually in 2010-14, according to a study of the Bangladesh Institute of Bank Management.

Despite the regular injection of funds, state-run banks have not been able to improve their NPL positions, said the editorial. 

The government has earmarked Tk 2,000 crore in the current budget to recapitalise the state-owned banks.

•  Courtesy: The Daily Star/Apr 12, 2018