Banks\' NPLs likely to swell further in next quarters

The volume of non-performing loans (NPLs) in the country's banking sector might even grow bigger at the end of the current quarter (July-September), some senior bankers have expressed the fear.
 The bankers have a feeling that some borrowers would default on repayments against both rescheduled and restructured large loans during the remaining quarters of the current calendar year.
 The situation on non-performing loans (NPLs) may deteriorate in the coming quarters as the existing position of classified credits is not reflected properly, Nazrul Huda, former deputy governor of the BB, told the FE Wednesday while explaining the latest situation.
The senior banker's observations came in the wake of the NPL amounts having risen by more than 23 per cent or Tk 120 billion in the first half (H1) of the current calendar year.
The trend in the recovery of NPLs during the first two months of current quarter has not been encouraging at all, said Syed Mahbubur Rahman, managing director and CEO of Dhaka Bank Ltd.
The volume of non-performing loans (NPLs) rose to Tk 633.65 billion as on June 30 last from Tk 513.71 billion as on December 2015. It was Tk 525.19 billion a year before.
"The amount of classified loans in the banking system may rise in the near future because some borrowers may fail to make repayment of instalments against restructured large loans along with rescheduled ones," Mr. Huda forecast.
Most of the restructured large loans' repayments are scheduled to start in the third quarter of this calendar year at the end of the one-year grace period, according to a BB senior official.
Most of the proposals on large loan restructuring were approved between July and August last year (2015), he explained.
The central bank earlier had cleared proposals of 10 business groups for the restructuring of their large loans worth Tk 140.48 billion.
A total of 22 commercial banks had earlier forwarded the proposals to the BB for approving loan restructuring on behalf of their clients.
The share of classified loans also rose to 10.06 per cent of the total outstanding loans during the period under review from 8.79 per cent six months before.
"Some rescheduled loans along with fresh ones might enter non-performing territory during the period under review," Nurul Amin, Chief Executive Officer and (CEO) and Managing Director (MD) of Meghna Bank Limited, said while explaining the upturn in the NPLs.
"It's a quite alarming situation in the banking system for the rest of this calendar year," he noted.
Mr Amin, also former chairman of the Association of Bankers, Bangladesh (ABB), advised that the bankers take vigorous efforts for recovering their non-performing loans for improving such situation.
Talking to the FE, Dhaka Bank MD said the rise in the NPLs was also a result of aggressive banking by a section of commercial banks because of their excess liquidity.
The classified loans cover substandard, doubtful and bad/loss of total outstanding credits which stood at Tk 6300.19 billion as on June 30 last from Tk 5846.15 billion as on December 31. It was Tk 5986.48 billion as on March 31, 2016.
Talking to the FE, another BB official said the amount of NPLs increased significantly during the period under review mainly for a lack of due diligence on part of the bankers along with good governance particularly in the public banks.
During the period, the total amount of NPLs with six state-owned commercial banks (SoCBs) rose to Tk 300.77 billion from Tk 237. 45 billion as on December 31 last. It was 272.89 billion in the Q1 of this calendar year.
On the other hand, the total amount of classified loans with 39 private commercial banks (PCBs) reached Tk Tk 253.15 billion in the Q2 from Tk 207.60 billion in the final quarter of last year. It was Tk 253.31 billion as on March 31last.
The NPLs from nine foreign commercial banks (FCBs) rose to Tk 21.56 billion during the period under review from Tk 18.97 billion in the Q4 of 2015. It was Tk 18.22 billion of the Q1 of this calendar year.
The classified loans with two development-finance institutions (DFIs) rose to Tk 58.17 billion in the H1 of 2016 from Tk 49.69 billion six months before. It was Tk 49.69 in the Q1 of this calendar year.
The highest level of classified loan concentration has taken place on commercial purposes and large-and medium-scale industries, standing at 16.7 per cent and 14.6 per cent in 2015, according to the central bank's latest report.
It was followed by 11.9 per cent and 11.3 per cent respectively in readymade garments and textiles and working capital particularly for large-and medium- scale industries. Currently, the rescheduled loans constitute a significant portion of the banks' total loan portfolio, the BB said in the report.
In 2015, the rescheduled loans were 4.5 per cent of banks' total outstanding loans, 5.0 per cent of total unclassified loans and 28.0 per cent of total stressed advances, compared with 3.4, 3.8 and 25.9 per cent respectively in the previous calendar year.
From 2014 to 2015, the total amount of rescheduled loans had increased by 50.1 per cent, in spite of the availability of large loan-restructuring facilities, it added.
Asked about the figure of rescheduled loans that have already got into classified territory, the central banker said the BB was not aware of transformation of such loans.
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