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SAM

Published:
2018-06-30 06:21:28 BdST

Guideline on NPL write-off underway


FT ONLINE

The central bank is set to make a new guideline on writing off non-performing loans (NPLs), an official said.

The Bangladesh Bank (BB) is actively considering a new strategy in the matters of writing off NPLs by the banks.

The NPL problem has been taxing the brains of the people at the BB and relevant others in the sector.

The practice of loan write-off is basically contributing to a shortfall of funds in the banking sector, the official said.

The Anti-Corruption Commission (ACC) recently sent a charter of recommendations to the BB on the issue of write-off of the NPLs.

It laid emphasis on putting maximum efforts to collect the irrecoverable loans.

According to a BB document, the loan write-off practice is an internationally accepted normal phenomenon in the banking business.

Owing to the domestic banks' reluctance to resort to this system, their balance sheets are becoming unnecessarily and artificially inflated, it stated.

According to sources, banks are required to provision in full the amount they write off anytime.

A good number of cases were lodged with the court of law earlier in this connection, they mentioned.

However, banks may write off a defaulted loan below Tk 50,000 without suing a borrower.

As per existing rules, the oldest of bad or classified loans should be considered first for writing-off, the BB document showed.

In spite of writing off a loan, a borrower will continue to be identified as a defaulter.

Like other loans and advances, the written off loans will be reported to the Credit Information Bureau (CIB) of the central bank, it cited.

When asked, Sonali Bank Managing Director and Chief Executive Official Md Obayed Ullah Al Masud welcomed an integrated guideline on the loan write-off.

He, however, said same treatment should not be given to all types of loans while writing off bad loans.

According to the BB data, a total of Tk 481.92 billion was written off from 2003 to 2017 in the banking sector.

The state-run banks wrote off Tk 226.15 billion and private banks Tk 239.92 billion.

Two specialised banks -- Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank -- wrote off Tk 5.55 billion and foreign banks Tk 10.29 billion.

The banks have initiated moves to realise their irrecoverable loans, but the results have not been satisfactory.

Some amount of the written-off loans is recovered every year, a private banker said.

Pubali Bank Managing Director and CEO Md Abdul Halim Chowdhury said it would be better if a combined guideline is introduced for the banking sector.

The guideline should also focus on the real causes behind the writing off loans, he said.

Mr Chowdhury said it should also look into mismanagement that has led the banks to write off loans.

The BB issued a loan write-off policy in 2003.

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