The central bank has asked the four state-owned commercial banks (SoCBs) to improve their financial health immediately through reducing the volume of classified loans.
The public sector banks have also been advised to go for disbursing small- and medium-scale loans and expedite credit flow to small and medium enterprises (SMEs) instead of large ones for minimising risks, officials said.
The instructions were given at a meeting, held at the Bangladesh Bank (BB) headquarters in the capital on Thursday with BB Governor Fazle Kabir in the chair.
The meeting was convened to review the progress of implementing memorandums of understanding (MoUs) and key financial indicators of the four SoCBs -- Sonali Bank, Janata Bank, Agrani Bank and Rupali Bank.
The central bank's latest instructions came against the backdrop of the rising trend of overall non-performing loans (NPLs) in the banking sector, particularly in the SoCBs in the first half (H1) of this calendar year.
During the period, the total amount of NPLs with six SoCBs rose to Tk 300.77 billion from Tk 237.45 billion as on December 31 last. It was 272.89 billion in the first quarter (Q1) of this calendar year.
However, the SoCBs also faced capital shortfall during the second quarter (Q2) of 2016 mainly due to the higher volume of their classified loans, according to the central bankers.
"The capital shortfall situation will improve in the coming quarters, if the SoCBs are able to reduce the volume of their NPLs," a BB senior official told the FE.
The aggregated capital shortfall of the four SoCBs increased by more than 41 per cent or Tk 13.27 billion to Tk 45.22 billion in the Q2 of 2016 from Tk 31.95 billion three months ago, the BB data showed.
The central banker also said higher NPLs have led to a rise in the banks' provisioning requirements, which ultimately prompted their capital shortfall.
"We've asked the SoCBs for taking vigorous efforts immediately to reduce the volume of NPLs," another central banker added.
As part of the moves, the SoCBs have also been instructed to take effective measures to expedite classified loans recovery drives across the country.
The chief executive officers (CEOs)-cum-managing directors (MDs) of the public sector banks and four observers were present in the meeting.
"We've assured the central bank of reducing the NPLs through boosting our recovery drives across the country," an official of a leading SoCB told the FE after the meeting.
On November 18, 2015, the central bank appointed observers to the SoCBs for improving their financial health through proper implementation of the signed MoUs.
The SoCBs have also been asked to improve their internal control and compliance in line with the BB's advices to check fraudulences and forgeries.
The central bank has also instructed the SoCBs to take necessary measures to properly implement the existing core risk guidelines to minimise their risks.
BB earlier identified six core risk areas in the country's banking sector. The risk factors are: credit, asset and liability, foreign exchange, information technology, internal control and compliance, and money laundering.
The meeting also reviewed various issues, including recovery position of default loans, liquidity situation, credit growth, operating expenses and cost of funds of the SoCBs.
The central bank had earlier signed the MoUs with the management of the SoCBs to improve their financial performance by providing policy support.
siddique.islam@gmail.com
Improve fiscal health by slashing classified loans
Siddique Islam | Published: October 21, 2016 00:00:00 | Updated: February 01, 2018 00:00:00
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