Kick-starting decisive actions and enacting requisite laws to lessen banks' non-performing loans are focused in a latest series consultation the World Bank is holding with Bangladesh government authorities, amid 'alarming' NPL buildup.
Officials have said a high-powered delegation of the World Bank, which handles finance, competitiveness and innovation issues, had a series of meetings with the Financial Institutions Division, Bangladesh Bank, and the Bangladesh Investment Development Authority (BIDA) during the last couple of days discussing progresses in the formation of various laws and rules.
The classified loans in the banking sector now have ballooned, with an annual spike of 21 per cent recorded in 2023, stoking concern among economists and other stakeholders.
At the end of the last calendar year, the volume of NPLs in the banking sector stood at Tk 1.46 trillion in a substantial rise from Tk 1.2 trillion in December 2022.
State-owned commercial banks bear the biggest burden of the classified loans--some 21 per cent or Tk 658 billion of their total outstanding loans--followed by state-run specialised banks with a share of 13.87 per cent or Tk 56.70 billion, the private commercial banks having 5.93 per cent or Tk 710 billion, and foreign commercial banks 4.82 per cent or Tk 32 billion.
Sources said the World Bank team had a meeting with top officials of the Financial Institution Division (FID) last Monday where various issues were discussed, with special emphasis on lessening NPLs and enactment of requisite banking-sector laws meant for tidying the industry.
"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," a senior FID official told the FE.
He said many things are linked with the stockpiles of NPL in banking sector. "We need to prepare strict laws to help lessen NPLs."
The World Bank wants to provide technical support for making laws and rules relating to bank-and financial-sector regulations to help improve their financial health.
Dr Zahid Hussain, a former lead economist at the World Bank's Dhaka office, told the FE that apart from working to cut down NPLs, the central bank also ought to set target to reduce the amount of distressed assets of banks.
"Banks with extremely high distressed assets need to be brought under the Prompt Corrective Action (PCA) framework sooner than waiting till March," he suggests.
Managing director and CEO of Mutual Trust Bank (MTB) Syed Mahbubur Rahman earlier had told the FE a significant rise in NPLs is "very alarming" for the country's banking sector.
"The commercial banks need to take drastic actions to get rid of the burden of NPLs that has further intensified the liquidity stress in the banks," he noted.
syful-islam@outlook.com