The issue here is the much maligned subject of non-performing loans (NPLs). The only difference this time, quite importantly, is that the World Bank (WB) has been holding a series of meetings with the "Financial Institutions Division, Bangladesh Bank, and the Bangladesh Investment Development Authority (BIDA)" and this has been going on for quite a number of days. The idea is clear. NPLs have now reached beyond all proportions requiring urgent measures. All the "interventions" made so far by local authorities have failed to put a dent on the accumulated NPL by the last fiscal.
NPLs threaten the very fabric of the financial sector. Warnings from bankers and financial watchers over the past 12 years has fallen on deaf. Now that things have gone out of control, the World Bank has been called in to help out. Similarly, the International Monetary Fund's (IMF) assistance was sought because domestic players had proved themselves to be far more powerful than the authorities, the directives of which were simply ignored.
No point in lamenting over reforms that should have kicked in more than a decade ago but never did because the time that has elapsed cannot be brought back. According to a report carried in this paper recently, the WB has stressed the need for enacting requisite laws and taking "decisive actions" to bring down banks' NPLs. Given the gravity of the situation, perhaps this time the government may take a second look at this nagging issue of NPLs. Obviously repeated printing of local currency to bail out financial institutions that keep giving out bad loans does in no way help. This repeated introduction of printed money has only helped to push inflation upwards and there's a limit to what people and industry can absorb when it comes to inflation.
According to latest data, there was a spike of 21 per cent in NPLs in 2023! Alarming is the fact that state-owned commercial banks led the pack with about 21 per cent of total NPLs that translates into Tk658 billion (out of total Tk1.46 trillion). The second place is held by state-run specialised banks with 13.87 per cent (Tk56.70 billion). What is amply clear from the above data is that since state-owned or state-run banks have little in the way of oversight, how come misappropriations of such gargantuan proportions take place? Obviously, there is a lot of politically-appointed indivduals on the boards of such institutions and it would take a mighty brave managing director to defy such an illustrious board. The net result is that in the fiscal year 2022, a little more than 34 per cent of total NPLs originated from these financial institutions.
Again the data suggest that privately owned or operated commercial banks have much more manageable NPLs that do not cross the 6.0 per cent mark. This is so because a good many private commercial banks are also publicly-listed companies and hence are liable to their shareholders. No such liability exists for state-owend banks because they can always rely on the State to refinance them - no matter how bad things get! Thankfully, that is no longer the case. The State is on its way to bankruptcy, unless it opts for a u-turn on these horrid practices. That is why the WB is in town. Policymakers have used up all their cards and crunch time is here, finally.
Tidying up the industry apparently is the new mantra. The question should rather be, is the political will power strong enough to take on these billionaire defaulters? It would be pointless to imagine banks' managements to get tough with companies / individuals who have siphoned off vast sums of money, especially when they have armies of lawyers who can put up roadblocks to justice by tying up litigation in the courts for decades. That said, some useful suggestions have been made that include: "The team discussed with us the formulation of laws, like what we did on secured transaction act and progress on enactment of offshore banking act, and other pending laws, among others", and these meausres can help address the balooned stockpiles of NPLs.
Obviously the State can benefit if it accepts the requisite technical expertise in formulating laws and rules that would help govern banking operations, but to repeat, it requires political will at the top to implement those provisions. Otherwise, this will be yet another fruitless exercise. Hopefully, lessons have been learnt this time around and financial policymakers will cauterise the wound before gangrene sets in that will do permanent damage.
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