Policymakers, top bankers suggest measures to tackle NPLs

Some policymakers and top bankers see non-performing loans (NPLs) spreading 'just like a cancer' and suggest effective measures to heal it immediately for tidying the country's economic arena.

As such observations came at a business meet in Dhaka Monday, Planning Minister MA Mannan also described the problem as a matter of "high public concern" and called upon the finance authorities to find an effective solution.

The observations and suggestions came in a business session on 'Financial Services Ensuring Sustainable Growth' on the sidelines of the two-day International Investment Summit 2021 (IIS 2021 Bangladesh).

Chief executive officer (CEO) of Standard Chartered Bank, Bangladesh Naser Ezaz Bijoy moderated the discussions with Planning Minister MA Mannan in the chair.

The planning minister asked the Governor of Bangladesh Bank (BB), Fazle Kabir, and Senior Secretary of Finance Division under the Ministry of Finance Abdur Rouf Talukder for taking necessary measures to curb the existing trend in NPLs.

"NPL is a high public-concern issue now," the minister said, adding that it will be brought down to a tolerable level.

Taking part in discussion at the session, Chairman of the Association of Bankers, Bangladesh (ABB) Ali Reza Iftekhar focused the ongoing NPL trend in the country's banking sector and said it was spreading "just like a cancer".

The chief of bankers' body advised all bankers to expedite recovery drives if the NPLs cross 2.0 per cent of total outstanding loans.

He also suggested the bankers to follow loan-writeoff process for improving their recovery, which also helps reduce the volume of default loans in the banking sector.

The central bank introduced guidelines for writing off classified loans in 2003 aiming to improve loan recovery and make the financial statements of banks more transparent and accountable.

Writing off loans is a global practice. But it will depend on the capability of the banks concerned to write off bad loans to make their financials look tidy.

Before making any final decision in this regard, the bank management has to ensure 100-percent provisioning against a written-off amount.

The senior banker also emphasized improving overall governance in the banking sector on the same grounds.

Responding to the ABB chief's observations on the latest NPL situation, the BB governor said the share of gross classified loans stood at 8.12 percent of the total outstanding loans as on September 30 this calendar year.

"But net NPL was 0.40 percent. The rest is covered by provisions so it is not a big problem," the central bank chief explained to allay concerns over its cascading economic impacts.

The issue figured high in the session against the backdrop of rising trend in NPLs in the banking sector in recent months despite providing policy support by the central bank. Some economists say NPL figures are shown lower than real through 'window dressing'.

Meanwhile, the volume of classified loans grew by nearly 14 percent or Tk 124.16 billion to Tk 1011.50 billion as on September 30, 2021 from Tk 887.34 billion as on December 31, 2020, the BB data showed.

Presenting a keynote paper the BB governor said Bangladesh has achieved sustained, stable and inclusive growth with a GDP (gross domestic product) size that has trebled over the last decade, growing at over 6.0 per cent on average amid external volatility.

The per-capita income in Bangladesh stands at $ 2554, surpassing its peers and neighbours, according to the governor.

"Bangladesh now has a foreign-exchange reserve of more than $45 billion, sufficient to meet over seven months' import liabilities, and is also blessed with moderate inflation and persistently low volatility," Mr Kabir told the audience.

Besides being a booming domestic market, Bangladesh is also a strategic hub linking India, China and the ASEAN countries, he said. "All in all, our country is on its way to becoming the next Asian Tiger."

"Currently the world's 41st-largest economy and set to be 25th-largest economy by 2035, Bangladesh, hence, presents an attractive destination for foreign investment," the central bank chief explained at the investment summit.

Mentioning three indicators-interest rate, inflation, and exchange rate-Mr Talukder said these indicators indicate that the country's macroeconomics is now stable.

Interest rates on lending came down to around 7.0 percent for term loans from 15-16 percent earlier, he said, adding that inflation rate over the last five years was almost around 5.0 percent.

Exchange rate in the last 10 years has almost remained steady, according to the senior secretary.

He also said these indicators help investors to investment in the country.

Among others, Manager, Regional Advisory Services, South Asia, of the International Finance Corporation (IFC) Selma Rasavac and Managing Director of the Hongkong and Shanghai Banking Corporation (HSBC), Bangladesh, Kevin Green also spoke on the occasion.