Page 28 - ICE BUSINESS TIMES December 2019

faltering financial health. Between January and delinquent loans worth Tk 2 select bad borrowers who later
Thirteen public and private lakh, up from Tk 50,000 turn into willful defaulters.
sector banks are on the list, March of 2019, Tk previously. Lack of good governance in the
according to the Bangladesh However Moody (yes, those banking sector is another
Bank latest data. Of the 13 557.30 crore was pesks again) have reported that important factor behind the rise
banks, four are state-owned, written-off, in contrast granting loan rescheduling and of NPLs. Big loan defaulters are
while the remaining nine are writing off bad loans is more getting various facilities to
private commercial banks. to Tk 141.26 crore a like sweeping the problem under reschedule their payment of
The thirteen banks are Sonali year earlier the rug than dealing with the borrowed amounts. Due to lack
Bank, Agrani Bank, Rupali problem itself. And to add insult of good governance, this
Bank, BASIC Bank, AB Bank, to injury, they marked down 8 problem is increasing.
Bangladesh Commerce Bank, local banks with a negative Enforcement of good
Dhaka Bank, Mutual Trust rating. governance—accountability,
Bank, National Bank, Standard The Capital, Asset, transparency and rule of
Bank, Shahjalal Islami Bank, Management, Earning, Liquidity law—can bring the banking
Social Islami Bank and Trust are the beneficiaries of the and Sensitivity to the market sector on the right track.
Bank. Some of the banks faced bailout scheme. risk (CAMELS) rating of
provisioning shortfall because And if that were not bad different commercial banks of FINAL FEW
they lent a large amount of enough, loan write offs are Bangladesh, seemed to follow a WORDS
INTRODUCTION new loans. To be successful in funds in violation of banking being considered a policy tool to similar trajectory and listed all In a scathing article, The
TO NPL : 101 the long run, banks need to regulations, it was alleged. discourage bad loans. Loan the state owned banks as Economist has labelled the
Our new Finance Minister, AHM
Non-performing loan, also keep the level of bad loans at a Mustafa Kamal vowed to write-offs almost quadrupled in Marginal or ‘D-Class’ banks and banks of Bangladesh to be
the first quarter of the year on
only ICB Islamic Bank to
known as an NPL, is a loan minimum so they can still earn eradicate NPLs by saying, “Now ‘crony ridden banks’, urging all
where the borrower has stopped a profit from extending new NPL becomes a matter of grave the back of the central bank’s Unsatisfactory or ‘E-Class’. political influence to be stopped

easing of rules, which is yet
paying the installments on the loans to customers. concern, but it is still in a when allocating loans and
principal (original amount) and If a bank has too many bad manageable position. From again a sobering reminder of HOW DID WE GET requesting hard action against
the banking sector’s
interest – it is effectively in loans on its balance sheet, its today, NPL will not increase and HERE? those borrowers who have made
default or very close. profitability will suffer because Bangladesh Association of deteriorating financial health. A But what has caused this a living off people's misery.
loan write off occurs when the
Most loans become it will no longer earn enough Banks (BAB) will take necessary massive upheaval of the Loan defaulters should be
non-performing if payments are money from its credit business. initiatives to cut the existing lender decides that a loan is not banking sector? There are many brought to book and their
collectible and removes it from
more than 90 days overdue – In addition, it will need to put classified loans.” reasons behind the rise of businesses should be curtailed.
this will depend on the terms of money aside as a safety net in their balance sheet. non-performing loans in the Bangladesh Bank officials
Banks prefer to never have to
the contract. As soon as a loan case it needs to write off the full banking sector. Political should be able to exercise their
is non-performing, the amount of the loan at some HOW ABOUT A write off bad debt since their influence is one of the big power without fear and favor
loan portfolios are their primary
likelihood of it being repaid in point in time. RAIN CHECK? reasons why defaulted loans are against loan defaulters.
full are considered to be Provisioning against defaulted In reality however the NPLs assets and source of future soaring. Political parties have By no means, is the above listed
revenue. However, bad loans
significantly lower. loans will also jeopardize the have galloped forward, for used their influence to secure problems the only issues
A performing loan will provide a financial health of many which we have the finance reflect very poorly on a bank's loans for the desired candidates. plaguing the banking sector,
financial statements and can
bank with the interest income it institutions. Banks have to keep minister to thank. His latest Over the years, many high and listing and explaining them
needs to make a profit and provisions against their NPLs as idea has been received with divert resources from more officials have been appointed in all is a herculean task, not fit
productive activity. Banks use
extend new loans. When per the central bank’s raised eyebrows and concern at the state-owned banks with for this writer. As such the
customers do not meet their guidelines. The provision home and abroad. I am talking write-offs, to remove loans from political influence, who have recommendations have also
their balance sheets and reduce
agreed repayment arrangements amounts are kept aside from the about the brilliant loan put the banking sector in been shortened. However, if one
for 90 days or more, the bank banks’ profits. When rescheduling program. their overall tax liability. jeopardy by unethically giving is interested, in a very detailed
Between January and March of
must set aside more capital on provisioning amounts become Loans are commonly loans to devious customers. A presentation, Centre for Policy
the assumption that the loan higher than the profits of a rescheduled to accommodate a 2019, Tk 557.30 crore was number of new banks were Dialouge, a local think tank,
written-off, in contrast to Tk
will not be paid back. This bank, it has to provision borrower in financial difficulty established on political has identified the problems and
reduces its capacity to provide amounts from its capital, which and, thus, to avoid a default. On 141.26 crore a year earlier, grounds. Consequently, some listed the recommendations
can result in capital shortfalls. May 16 this year, Bangladesh according to data from third-generation banks were starting from recognizing the
Capital shortfalls in turn Bank offered a special loan Bangladesh Bank. Earlier in involved in massive loan scams problem for what it is, scraping
hamper trade activities with rescheduling facility for loan February 2019, the central bank which has resulted in the exit plans for state owned
overseas banks. defaulters with 2 percent down revised its policy to allow banks significant damage to the banks and upholding the
payment and a long 10-year to write-off default loans that financial health of the banking independence of Bangladesh
BACK TO repayment facility with one-year have been languishing in the sector. Bank.
REALITY grace period and one time exit bad category for three years, Issuing of loan to bad borrowers One can only hope that the
The banking sector faced a provision with maximum down from five years previously. is another reason behind the government recognizes the peril
combined provisioning shortfall interest waiver. Moreover, there Furthermore, lenders do not rise of NPLs. Bank officials lack the banking sector is in and
of Tk12,897crore at the end of will be no new credit facility for have to file any case with the knowledge about the potential does more than what the sector
June this year, exposing their the defaulted borrowers, who money loan court to write off customers, and they wrongly requires.

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