NPL and termination threat
Sunday, 24 August 2008
THE performance of the state-owned banks in Bangladesh has never been encouraging. Mismanagement, corruption, inefficiency and political interference have been the hallmarks of these banks in spite of occasional efforts to bring about a noticeable change in the situation. However, the demand for a change in the performance of these banks has always come from the outsiders, particularly the multilateral lenders. An improvement in their performance was first tried under the financial sector reforms programme (FRSP) in the early nineties. Another donor-driven programme is now on for restructuring and privatisation of the state-owned banks. Under the latest programme, a move to privatize the largely state-owned Rupali Bank has fallen flat because of inept handling by the Privatisation Board. As part of that programme, the government has recently corporatised three state-owned banks and appointed the chief executive officers (CEOs) for those on contractual basis. The CEOs have been given some specific targets to improve performance of these ailing banks.
However, Finance Adviser Mirza Azizul Islam while making a review of the performance of the newly corporatised state-owned banks late last week appeared to be not happy with the performance of their CEOs. Talking to newsmen after the meeting, he issued an unambiguous threat to the CEOs that if they failed to fulfil their targets, particularly in relation to recovery of non-performing loans (NPL), they would be terminated on a month's notice. The state-owned banks have always been carrying a heavy burden of the NPL for a variety of reasons, including the governmental interference in loan and management decisions of these banks. The extent of the problem is better represented by the NPL figures of these banks. The size of the NPL in the country's largest bank, the Sonali Bank, was Tk. 85.47 billion as of June 30 last, which was equivalent to nearly 45 per cent of the bank's total outstanding loan amount. The amount of classified loan of the bank had increased by nearly 5.0 per cent in the last quarter of the last fiscal despite recovery of Tk. 2.46 billion from its defaulting borrowers during the same period. The sizes of the NPL were nearly 20 per cent for Janata Bank and 27.50 per cent for Agrani Bank of their respective total outstanding loans as of June 30 last.
The finance adviser's threat to terminate the CEOs of the state-owned banks might seem justified if seen in the context of the terms and conditions of their appointment. But the adviser does need to take into account the ground realities before taking any harsh measure. The finance adviser has himself admitted that the rise in the NPL in the recent months neutralized the effect of the special recovery drive by these banks. It is believed that the economic fallout from the ongoing anti-graft drive has largely contributed to the latest rise in NPL in the state-owned banks. What deserves special attention here is that a good number of public sector organizations, including the Bangladesh Petroleum Corporation (BPC), are among the top loan defaulters. Banks are advised by the government from time to time to go slow if they put pressure on the errant public sector borrowers to repay their loans. Besides, the banks concerned have been forced to be involved in a lengthy legal process as many errant borrowers have taken recourse to law. It is estimated that the amount of NPL recoverable from the public sector borrowers and that from the private sector borrowers who have gone to courts, together, would be more than 60 per cent of their total NPL size. So, the government needs to discipline its own entities as far as the repayment of their debts to the state-owned banks is concerned. It should also ask the law ministry to devise means for early settlement of loan-related cases pending before the higher court. Meanwhile, these banks might consider taking the services of asset reconstruction companies, if there is any, for getting back, at least, a part of their bad loans.
However, Finance Adviser Mirza Azizul Islam while making a review of the performance of the newly corporatised state-owned banks late last week appeared to be not happy with the performance of their CEOs. Talking to newsmen after the meeting, he issued an unambiguous threat to the CEOs that if they failed to fulfil their targets, particularly in relation to recovery of non-performing loans (NPL), they would be terminated on a month's notice. The state-owned banks have always been carrying a heavy burden of the NPL for a variety of reasons, including the governmental interference in loan and management decisions of these banks. The extent of the problem is better represented by the NPL figures of these banks. The size of the NPL in the country's largest bank, the Sonali Bank, was Tk. 85.47 billion as of June 30 last, which was equivalent to nearly 45 per cent of the bank's total outstanding loan amount. The amount of classified loan of the bank had increased by nearly 5.0 per cent in the last quarter of the last fiscal despite recovery of Tk. 2.46 billion from its defaulting borrowers during the same period. The sizes of the NPL were nearly 20 per cent for Janata Bank and 27.50 per cent for Agrani Bank of their respective total outstanding loans as of June 30 last.
The finance adviser's threat to terminate the CEOs of the state-owned banks might seem justified if seen in the context of the terms and conditions of their appointment. But the adviser does need to take into account the ground realities before taking any harsh measure. The finance adviser has himself admitted that the rise in the NPL in the recent months neutralized the effect of the special recovery drive by these banks. It is believed that the economic fallout from the ongoing anti-graft drive has largely contributed to the latest rise in NPL in the state-owned banks. What deserves special attention here is that a good number of public sector organizations, including the Bangladesh Petroleum Corporation (BPC), are among the top loan defaulters. Banks are advised by the government from time to time to go slow if they put pressure on the errant public sector borrowers to repay their loans. Besides, the banks concerned have been forced to be involved in a lengthy legal process as many errant borrowers have taken recourse to law. It is estimated that the amount of NPL recoverable from the public sector borrowers and that from the private sector borrowers who have gone to courts, together, would be more than 60 per cent of their total NPL size. So, the government needs to discipline its own entities as far as the repayment of their debts to the state-owned banks is concerned. It should also ask the law ministry to devise means for early settlement of loan-related cases pending before the higher court. Meanwhile, these banks might consider taking the services of asset reconstruction companies, if there is any, for getting back, at least, a part of their bad loans.