The size of 'stressed assets' in the banking system of the country, in all likelihood, would be bigger than that mentioned in the just-published Financial Stability Report (FSR)-2015 of the central bank. And the latest FSR in a way has acknowledged it.
'Rescheduling' is one method that is used, or abused, very often by the banks concerned to make their financials better-looking and increase their annual profits, using lesser than actual amount of resources for provisioning the non-performing loans (NPLs).
Lately, the Bangladesh Bank (BB) has employed yet another vehicle called 'restructuring' that has helped some banks partly cleanse their balance-sheets. This has also enabled a few large borrowers, including delinquent ones, to delay repayments of their overdue loans for some specific time and enjoy lower rate of interest.
The volume of loans rescheduled in 2015, according to the FSR, went up by more than 50 per cent over that of 2014. The amount constituted 4.5 per cent of the banks' total outstanding loans. It was also equivalent to 5.0 per cent of unclassified loans and 28 per cent of the total stressed assets in the form of advances.
Beyond rescheduling, loans worth Tk. 164.1 billion were restructured for the first time in the country's banking history. Those again accounted for 2.8 per cent of the total outstanding credits and 17.4 per cent of the total stressed loans.
However, there are, as usual, good performers and bad performers in the banking industry. The state-owned banks have been always bad performers. But their performance is now worse than before and a number of large loan scams do substantiate such an allegation.
The performance of the private banks undoubtedly is better than their public sector counterparts, but a few of the former, possibly, are not in good shape. Their financial health is not as rosy as their financials depict. The practice of rescheduling might have come into play here to make their balance sheets better-looking.
The Bangladesh Bank (BB) is aware of the enormity of NPL problem that the country's banking industry has been facing for long. That is why it has laid emphasis on 'orderly' recovery of the same. Otherwise, it maintained, the banks would suffer from lower profitability and deteriorating equity-base.
Banks are having problems with recovery of classified loans that were either sanctioned without due diligence on the part of the bankers concerned or given under pressure from influential quarters. The problem, according to banking sector insiders, is more with large loans and loans that have been disbursed against collaterals of questionable quality.
Moreover, the overall situation is not that conducive to carrying out banking operation in Bangladesh. The default culture has gone so deep that it has become difficult for the banks to conduct business in fair and transparent manner. The presence of banks more than what the market needs remains yet another major problem. The banks in their bid to secure big clients do often get themselves involved in unfair competition, causing financial losses not infrequently to them. It is not that the banks' boards are not aware of such 'aggressive' activities by the bankers. Yet, for the sake of business, they tend to overlook a few deviations.
The loan rescheduling has become a part of the default-culture in Bangladesh. The banks are, to be honest, hostages to big delinquent borrowers. Out of the fear of losing the entire amount, banks give in to pressure coming from such borrowers to grant loan rescheduling facility.
And borrowers who are ineligible for enjoying loan rescheduling spearheaded the pressure on the government and the central bank to offer loan restructuring facility. Big borrowers who were granted the facility are now enjoying the grace period. From July next, however, they are due to start repayment and only then their performance would come under scrutiny. Until then one will have to keep one's finger crossed.
The banks, in most cases, can avoid lending to bad clients if they really mean business. The credit information bureau (CIB) at the BB is there to help them. If the bankers concerned want, they can also gather information about the track record of the borrowers and authenticity of collaterals. But there exist some weaknesses in this particular area. Lack of competence and greed factor are two major weaknesses, it seems.
The new central bank governor, Mr. Fazle Kabir, with a view to improving NPL situation, has advised the banks to make best use of the central database of large credit (CDLC) developed at BB and improve their internal controls and compliance.
The governor has also suggested the lenders, meaning banks and non-banking financial institutions, to form their joint forum to better coordinate their large loan operations. Such a forum would be effective only when banks place safety of their funds above aggressive business, being done in both fair and foul ways. The overall banking environment in Bangladesh calls for close cooperation among banks. Hopefully, they would listen to the BB's suggestion.
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