Country's central bank last week asked the banks to bring down the share of the non-performing loans (NPLs) in their respective outstanding volume of loans to below 10 per cent by the end of the current month, meaning the end of the calendar year 2014.
If not the state-owned ones, the private banks too are eager to see their NPL well below the 10 per cent mark for they have to offer dividends in somewhat respectable amounts to their shareholders. But this might prove a daunting task this time.
At the fag end of the last year, the central bank, for reasons best known to it, turned out to be unusually generous. It, on December 23, 2013, had issued a directive relaxing the loan rescheduling facility for six months until June 30, 2014. Â
Banks were allowed to reschedule loans by fixing their down-payment and time-limit for repayment on the basis of 'customer-banker' relationship.
The banks were given the 'breathing space' in view of the loss of business due to unprecedented political trouble in the latter half of 2013, ahead of the national polls in early January this year.
The 'relaxation' had offered the banks the opportunity to 'window-dress' their respective NPLs and present relatively healthy financials for the year 2013.
The size of the NPL was 13 per cent in September, 2013. It had come down to less than 10 per cent---8.93 per cent, to be exact---following the relaxation of conditions for rescheduling of loans. The central bank is unlikely to offer any similar facility this time for it had to digest enough of criticism, even from person none other than the finance minister of the country, for its generosity.
However, the criticism was not without a basis. The banks had not been able to improve their NPL situation. The delinquent large borrowers who were actually benefited by the relaxation of the rules, in most cases, again defaulted on the payment of rescheduled instalments.
Thus, the size of the total NPL in the banking sector had again gone back to the previous high at the end of June last and the trend has been persisting since then.
The banks, according to a top central banker, through the relaxation of rescheduling rules had got a 'lifeline'. But, in reality, it offered some temporary relief to banks and opportunity to the habitual loan defaulters to delay repayments further. Â
The figures would speak for the actual situation. At end of the third quarter of the current year, the share of NPL in the total outstanding banks' loans stood at 11.6 per cent compared to the 'window-dressed' figure of 8.93 per cent at the end of 2013. The actual size of the NPL would be even larger---above 13 per cent--- without any 'window-dressing' by the banks, taking advantage of the directive of the central bank.
It is unlikely that banks would be able to bring down the NPL from the current size through any 'vigorous' recovery drive within two weeks. The period is too short to compensate for the laxity shown throughout the year.
Besides, banks hardly show in their financials the actual size of NPL. They resort to different sorts of trickeries to downsize the NPL. It does happen both within and beyond the knowledge of people representing the regulator concerned. Â
There is no denying that the banks have been in an uncomfortable situation for a number of factors and their profitability had gone down for the last three consecutive years. The collapse of the share market at the fag end of 2010 after a bull-run for nearly two years was a major factor, no doubt.
Besides, depressed investment scenario and business activities have also largely contributed to the low demand for funds from banks.
However, the problems facing the public sector banks are different from those troubling the private or foreign banks. The public sector banks have their built-in and systemic deficiencies. Sporadic efforts were undertaken to remove those, at least, partially, through reform measures. But those have not helped much.
The performance of the private local and foreign banks has always been better than their public sector counterparts. The share of NPLs in the total outstanding loans of state-owned-commercial banks (SoCBs) is far larger than that of private or foreign banks. Thus, the average size of the NPL, when estimated covering all the banks, does not give the true picture in the case of non-public sector banks. Â
However, if the 'hidden' NPL of the private banks could be taken into account, their financials would not have looked as healthy as they are shown all the time.
zahidmar10@gmail.com
Banks’ NPL size: No magic wand this time
Shamsul Huq Zahid | Published: December 24, 2014 00:00:00 | Updated: November 30, 2024 06:01:00
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