Stubborn NPL edges down with heavyweight rescheduling

Non-performing loans (NPLs) belonging to banks edged down by a meagre Tk 6.41 billion to Tk 1.55 trillion in September, quarter on quarter, following two major rescheduling events.
However, competent sources have said, the real burden would be heavier with rescheduled and written-off credits apportioned through window-dressing.
Bankers and economists say the pressure on the country's banking sector continued mounting under the load of NPLs or classified loans which weakened the financial health of the key financial sector.
In fact, they guess, the actual size of the stress assets in banks would be much higher than the NPL amount if the volumes of loan rescheduling and write-offs are taken into account.
Sources at Bangladesh Bank (BB) have said the overall NPLs plummeted to 9.93 per cent of the total outstanding loans that stood at Tk 15.65 trillion as of September 2023.
With this drop in the volume of bad loans, the overall ratio of non-performing loans or classified loans stood at 9.93 per cent - 0.18-percentage points lower than the June-end period.
In terms of the category of banks, the volume of classified loans in the state-owned commercial banks (SCBs), like on other occasions, remained high at 21.70 per cent of their total outstanding credits of Tk 3.03 trillion by September.
The ratio of bad loans in specialised banks against their total advances (Tk 695 billion) is 12.10 per cent while it is 7.04 per cent in private commercial banks having total outstanding figure of Tk 11.58 trillion. The NPL ratio in foreign commercial banks is 5.07 per cent out of their entire outstanding (Tk 548 billion).
Seeking anonymity, a central banker said a state-owned commercial bank recently did loan rescheduling involving Tk 115 billion of two leading corporate borrowers.
"Because of the loan rescheduling, the volume of NPL in the banking industry in July-September period recorded a sharp fall," the BB official said.
Another BB official said the IMF team in recent meeting with the central bank suggested lessening the ratio of bad loans in state-owned commercial banks (SCBs) to 10 per cent and private commercial banks (PCBs) to 5.0 per cent within the shortest possible time.
But the BB representatives in the meeting assured the IMF men of bringing down the volume of stress assets in the banking sector to a tolerable level but it would take at least two years as it will require structural changes.
Economists familiar with the financial market told the FE that this is some sort of relief but the volume of NPL remained "alarming" as yet.
Dr M. Masrur Reaz, chairman of the Policy Exchange of Bangladesh, said: "The absolute amount of NPL is still too high."
He said 10 per cent of the banking assets remained vulnerable due to such high NPL volumes.
"There is no indication of improving governance in the banking sector," he said.
The economist suggests that good governance in the state-owned banks which contributes much to the overall NPLs should be strengthened.
Dr Mustafa K Mujeri, executive director of the Institute of Institute for Inclusive Finance and Development, sees this reduction to some extent as a good sign.
"But I think this is suicidal for the banking sector. We should try on how to reduce the NPL at a tolerable level. We need more effective mechanisms for improving in the NPL situation," he said.
Dr Ahsan H. Mansur, executive director of the Policy Research Institute of Bangladesh, says actually there is no reduction in the NPL in true sense in the period under review.
He mentioned that two large groups got relief from around Tk 270 billion in default loan during the period. "Even I don't know what the conditions for rescheduling for two big loans are."
In the current economic situation and uncertainty in the economy the NPL may expand more in the second quarter of the fiscal year, he told the FE.
He mentions that there is move for bringing qualitative changes in the banking sector. "Just there are some improvements on paper."

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