NPL enervates banking but economic activities buzzing

Banking sector created some concerns, mainly for enervating spike in classified loans, in the first quarter (Q1) of this fiscal although country's overall economic activity gathered momentum.     
The central bank released the measure of macroeconomic conditions in its latest Bangladesh Bank Quarterly (BBQ) for the July-September 2016 period.
It says the banking-sector indicators caused some concerns during the Q1 of the financial year (FY) 2016-17 as gross non-performing loan (NPL) ratio crept up to 10.34 per cent at the end of September 2016 from 10.06 per cent at end of June, according to the central bank's quarterly report.
"However, the ratio of net NPL in the banking sector declined to 2.77 per cent from 2.81 per cent during the same period due partly to some shrinkage in provision shortfall," says the Q1 report.
The provision-shortfall position of the banking sector came down to Tk 43.8 billion at the end of September 2016 from Tk 44.5 billion three months before, it noted.
Talking to the FE, a BB senior official said the central bank expedited its monitoring and supervision to improve the overall performance of the country's banking sector.
"We've already asked all banks, particularly public ones, for taking effective measures immediately to reduce the volume of NPLs," the central banker said while explaining the latest BB position.
Besides, the central bank had signed memoranda of understanding (MoU) with different state-owned commercial banks (SoCBs) for improving financial health through ensuring good governance in the banking world.
"All the banks have already been advised to be more careful in case of borrower selection and exercise due diligence while sanctioning fresh loans," the central banker noted.
On the other hand, the spread of monthly weighted average interest rates for all banks fell to 4.76 per cent in September 2016 from 4.91 per cent in June 2016 owing to falling lending rates, while the weighted average call money rate decreased marginally from 3.70 per cent in June 2016 to 3.64 per cent in September 2016, the BBQ said.
Looking ahead to the economic spectrum in FY I7, the current BB forecast is that output growth is likely to range between 7.1-7.3 per cent.
The outlook is based on current and projected trends in a number of variables, like global growth, domestic and foreign investment, private- sector credit growth, electricity production and growth in import of capital goods.
"However, negative growth in remittance inflow and upward adjustment of natural gas price might create downside risk to the projection," it said.
The BBQ also noted that though the current1evel of consumer price index (CPI) inflation (12-month average) is below the target, point-to-point nonfood inflation has been on the rise since July 2016. And the barometer here might feel some upward pressure on average inflation in coming months.
Economic activities witnessed a strong expansion during the period under review compared to the level of QI of the FY 16, according to the BBQ.
"The momentum in economic activities was more pronounced in the industry and the service sectors reflected in noticeable growth in large- and medium-scale industry production (9.53 per cent) and considerable growth in bank credits to trade and commerce (15.80 per cent) along with healthy growth of' cargo handled through Chittagong port (20.10 per cent)," the central bank said to explain the overall economic health of the country.
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