Crash course drawn to bring NPLs below 8.0pc

A crash course is drawn for downsizing burdensome classified loans below 8.0 per cent within June-2026 timeline for the banks to comply with, as per government's financial-reform pledges.
Under the time-bound and target-oriented roadmap on getting to grips with the ballooning non-performing loans (NPL), the central bank plans to reduce the idle assets of the state-owned commercial banks to 10 per cent and private banks below 5.0 per cent within the next two and a half years.
The average ratio of gross NPLs in the banking industry was 9.93 per cent at the end of September 2023, up from 9.36 per cent in September 2022, according to Bangladesh Bank statistics.
The volume of NPL in the public banks was recorded 21.7 per cent of their outstanding loans while it was 7.04 per cent in the private commercial banks until September 2023.
Illustrating key features of the roadmap, approved in Sunday's 432nd board meeting of the central bank, BB deputy governor Abu Farah Md. Nasser said they chalked out 11-point initiatives to cut down the volume of NPL in banks within 8.0 per cent by the end of June 2026.
The central bank also planned implementing 6-point measures to ensure corporate governance completely stopping the tendency of disbursing limit-crossing loans, releasing loans through forgery and anonymous (Benami) loans in the banking sector as part of the roadmap.
Under the NPL blueprint, the banks will be instructed to write off loans two years after becoming classified instead of the current practice of three years. But the banks will have to keep 100 per cent provision against the loans.
"To realise the written-off loans, each bank will have to form a write-off loan-recovery unit under the leadership of its chief executive officer and managing director," the deputy governor said.
The success and failure of the unit will also be attached with the performance of the bank's top executive, he added about the strict compliance mandate.
The central bank also decided to allow the formation of asset- management company (AMC) in private management where the banks can sell their written-off assets and clean their balance sheet.
"We've already made a draft law which will be tabled in parliament soon for getting its approval," the deputy governor said.
Mr Nasser says the banks are now being allowed to show interest income of the stressed assets in income account until the assets are classified. Henceforth, the banks will not be allowed to do it.
The BB deputy governor mentions that the central issued various flexible policies, including stimulus package and moratorium facility, for various sectors in recent past soon after the Covid-19 pandemic hit the nation, considering economic vibrancy of the country.
Since December 2023, the central bank had not offered any such facility. From now on, the BB will treat a loan as regular based on the payment of the installment. "Otherwise, it (loan) will not be treated as regular and the central bank will not take any of such flexible policies unless any major economic disruption happens, like in the Covid-19 pandemic."
According to the BB statistics, there are 72543 cases pending with the Artha Rin Adalat involving over Tk 1.78 trillion.
He said the banks would be instructed to intensify their cash-recovery process recruiting the country's highly qualified legal experts to bring further acceleration in cash recovery, especially against the classified loans. Simultaneously, the commercial lenders will also be directed to give more emphasis on ADR (alternative dispute resolution) platform for unfreezing the trapped money.
It will also be made mandatory for banks to reassess their own valuation of the collateral security against the loans by the listed collateral-evaluating firms. "We will soon release a list of such firms," he said.
In terms of ensuring corporate governance in the banking industry, he said they would soon circulate guidelines having specific qualification to become independent director of any bank. The independent director of any bank will not be allowed to get engaged in banking transactions.
"We'll also bring necessary changes in the policy regarding the duties and responsibilities of becoming shareholder director of a bank," Mr Nasser said, adding that it will also be seriously monitored so that single-borrower-exposure limit is not disturbed.
The deputy governor said the central bank asked the country's top bank executives in the recent bankers' meeting to seriously follow the recently circulated PCA (prompt corrective action) framework to avert actions like mergers and acquisitions.
Managing Director and CEO of Mutual Trust Bank (MTB) PLC Syed Mahbubur Rahman termed the cluster initiatives a good one, saying that the banks need to come out of the vicious circle of classified loans by intensifying cash-recovery efforts.
"But the implementation of the steps is very important and it needs to be followed up rigorously," he said.
Contacted about the developments, former lead economist of World Bank's Dhaka office Dr Zahid Hussain said the measures of the roadmap are mostly much talked about in the past.
"But where is the timeline like when the AMC will be formed and acts," he said.
But there is nothing in detail. For example, there is no clear definition about the stressed assets, the bad-loan-recognition criteria, the selection criteria of the proposed AMC and to whom they will be accountable, according to him.
"I hope the central bank will make those clear soon. The roadmap needs to be applied equally to all. Otherwise, we will not see desired results," the economist says.

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