This letter is in reference to a news item titled "New finance minister sounds tough on loan defaulters" published in the Financial Express on January 08, 2019. The report stated that newly-appointed Finance Minister AHM Mustafa Kamal has asked the bankers to go tough on delinquent borrowers to help lower the size of non-performing loans (NPL). He asked them to bring down the (ratio of) NPL to 7.0-8.0 per cent from the existing 13 per cent which is quite high. The minister said, loans should be given to the right kind of people only, and urged the bankers not to spare even 'relatives' in the case of loan recovery. He also said that no one needs to be sent to jail but public money needs to be recovered from the defaulters. The minister further said that the spread between lending and deposit rates is still very high and this needs to be lowered.
I would like to convey my thanks to the newly-appointed minister for highlighting the core problems of the banking sector through his speech.
It is needless to point out that in recent times loan default, especially in the state-owned banks, has emerged as a topic of frequent discussions in most circles and in the media. The issue is much talked-about as it affects investment, economic growth, employment generation and poverty alleviation, all of which are inextricably connected with the financial soundness of the banking system. The banking system of the country is currently under tremendous stress because of the size of NPLs.
The following reasons are mainly responsible for loan defaults:
1) Incompetence of the bank personnel i.e. lack of professional knowledge, improper valuation of collateral, wrong assessment of cash flow, faulty documentation, lack of monitoring and follow-up etc.
2) Poor governance in the banking system,
3) Political influence and backing for loan sanction,
4) Ineffective judicial system of loan recovery.
The remedial measures for these could be:
1) Training the bankers.
2) Establishment of good corporate governance,
3) Doing away with pressure from politicians
4) Quick disposal of loan default cases at the court.
Through the minister's statement that only the right kind of people be given loans and urging the bankers not to spare even 'relatives' in case of loan recovery, it is clear that he means business. So, in the process of recovering the funds, political interference should not be allowed.
We would like to rely upon the minister's bold step and control over the banking system. Hopefully, in due time and through the implementation of proper steps, the size of NPLs will drastically decline.
Md. Zillur Rahaman
Islami Bank Bangladesh Ltd.
Lalmohan Branch, Bhola.
© 2024 - All Rights with The Financial Express
