Page 70 - ICE BUSINESS TIMES January 2020

Let’s Talk

About NPLs.

Again.

Non-performing loans (NPLs) have
been a long standing thorn on the
side for Bangladesh Bank, which
has called into question the
soundness and safety of the
banking sector due to poor lending NUMBERS
practices, a lack of corporate
governance and the government's DO NOT LIE
interference.
The International Monetary Fund
indicates that a loan is Cross-country comparison of
non-performing when payments of NPLs in Bangladesh are NPLs is difficult, as there is no
interest and/or principal are past classi ed as substandard, universal definition of an NPL
due by 90 days or more interest doubtful, and bad or loss and accounting rules vary in
payments equal to different countries. But the
90 days or more have been which are calculated based on 90-day period is widely used by
capitalized, refinanced, or delayed uniform criteria. A loan is countries to determine a loan to
by agreement. A debt can also be substandard if it is overdue for be nonperforming.
classified as NPL if payments are Cross-country comparison with
less than 90 days overdue, but 3 months or more but less some countries in Asia and the
there are other good reasons—such than 9 months, doubtful if Pacific shows that the NPL ratio
as a debtor filing for bankruptcy— overdue for 9 months or more to total loans in 2017 was
to doubt that payments will be highest in India (10.0%),
made in full. NPLs in Bangladesh but less than 12 months, and followed by Bangladesh (9.3%),
are classified as substandard, bad or a loss if it is overdue Thailand (3.1%), Indonesia
doubtful, and bad or loss, which are for 12 months or more. (2.6%), Viet Nam (2.3%), Sri
calculated based on uniform Lanka (2.5%), the People’s
criteria. A loan is substandard if it Republic of China (1.7%), and
is overdue for 3 months or more but Malaysia (1.5%).
less than 9 months, doubtful if However, the NPLs of banks
overdue for 9 months or more but ratios, as they granted loans on rose by a staggering
less than 12 months, and bad or a weak appraisal, and under directed Tk3,863.14 crore in three
loss if it is overdue for 12 months lending programs, especially during months till September this year,
or more. the 1970s and 1980s. After loan taking the amount of stress
The size of NPLs in Bangladesh is disbursement, the banks’ follow up loan in the banking sector to
much higher than in other on repayments was not strong, and Tk1,16,288.31 crore despite
countries in Asia and the Pacific. such directed lending programs huge facilities in place to
From its independence in 1971 have led to a massive build-up of regularize default loans. As of
until 1999, there was a steady rise poor-quality loans, resulting in September, the total bad loans
in the share of NPLs in Bangladesh, continued heavy losses. Banks were accounted for 11.99% of the
with the gross NPL ratio to total also reluctant in writing off the total disbursed loans, according
loans in the banking system long-lasting bad loans mainly due to the latest Bangladesh Bank
peaking at 41.1% in 1999. NPLs to below standard underlying data. At the end of June this
have increased for all types of collateral and fear of probable legal year, the total non-performing
banks. The State Owned complications. This also loans in the banking system
Commercial Banks (SCBs) and contributed to the increase of NPLs were at Tk1,12,425.17crore, or
Development Financial Institutions in the asset portfolio of these 11.69% of the total disbursed
(DFIs) recorded the highest NPL banks. loans.

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