Monitoring post-import financing (PIF) as a suspect behind an upturn in non-performing loans (NPLs) in the banking sector is being mounted by the regulator, officials said.
Under the latest move, all the scheduled banks have been instructed to submit their PIF statements to the Department of Off-Site Supervision (DOS) of the central bank in a prescribed format on quarterly basis.
The instructions came in a notification issued by the Bangladesh Bank (BB) Wednesday, in a bid to prick the bubbles in bad loans.
Post-import financing is a short-term credit facility available to importers for settlement of their import bills which are going to mature.
However, the first statement will have to be submitted to the central bank by the end of October this calendar year, as per the regulatory decree-one in a chain of late, meant for managing the money market.
The central bank also asked the banks to send a copy of the statement to the Taskforce Cell of its Banking Regulation and Policy Department (BRPD).
"We've strengthened our monitoring and supervision of such financing to curb the pressure of classified loans in the country's banking sector," a BB senior official told the FE while explaining the main objective of the latest move.
A considerable amount of the total NPLs has come from such short-term financing, posing a threat to the country's banking system, the central banker noted.
Nearly 28 per cent or Tk 247 billion of the total Tk 882.36 billion classified loans concentrated in the trade-financing sector in 2020, according to the central bank's latest Financial Stability Report (FSR) 2020.
"As loans in the trade-and-commerce sector occupied more than one-fifth of the banking-sector loans and advances, this sector's loans need to be monitored intensively," the BB says in the FSR.
Shah Md. Ahsan Habib, professor and director of Bangladesh Institute of Bank Management (BIBM), welcomed the latest BB move, saying that it will help ensure credit discipline in the banking sector.
"Any default or challenge relating to the trade financing should be identified separately to undertake operational measures," Dr Habib told the FE.
Earlier on June 13 this calendar year, the central bank issued a policy regarding PIF for strengthening monitoring and supervision of such financing.
Under the existing policy, the banks have been asked to set up a special 'PIF Monitoring Unit' to oversee loan disbursement and recovery under PIF.
Banks are now allowed to extend the tenure of such loans for essential items for maximum 30 days and for industrial raw materials for maximum 60 days, according to the BB officials.
The conventional banks normally provide such financing under loan against trust receipt (LTR), while the Shariah-based Islamic banks offer such financing in the names of murabaha trust receipt (MTR) and murabaha post-import (MPI) to the importers.
The latest moves came against the backdrop of rising trend in classified loans in the banking sector despite providing policy support by the central bank in relation to loan classification.
Meanwhile, the volume of classified loans grew by more than 7.0 per cent or Tk 63.51 billion to Tk 950.85 billion during the January-March period of 2021 from Tk 887.34 billion in the preceding quarter, the BB data show.
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