Tighten targeted action against bad loans

Non-performing loans triggers serious risks to the banking system, the International Monetary Fund cautioned and suggested that Bangladesh should further tighten measures against the buildup of bad loans.
Making such observations, a visiting team of IMF representatives Wednesday wanted to know from finance and banking authorities the moves of the central bank and banking and financial institutions division under the Ministry of Finance for recovery of the default loans.
The burning issue of non-performing loan or NPL was largely discussed in the IMF team's meeting with officials concerned of Bangladesh Bank (BB) and the banking and financial institutions division, the meeting sources said.
Secretary of the financial institutions division Sheikh Mohammad Salim Ullah and three deputy governors led the respective sides in the meeting. According to the IMF assessment, the volume of bad loans will increase to Tk 300 billion if the rescheduled credits count as NPL.
The IMF officials in the meeting said the departments concerned cannot control NPL. In response, the secretary said the IMF has given higher target to this effect and it becomes tough to meet the target if it is much higher, according to the meeting sources.
Seeking anonymity, an official said the IMF members suggested making a bank-wise list of curtailing the volume of default loans, which was needed.
"In reply, they (IMF people) were told that we did it and it is a regular item, but the target has been increased that puts more pressure," the official said.
The official said the IMF representatives were updated about the latest size of NPLs and capital ratio in the parlays. In fact, the global lender wanted to see whether Bangladesh is on the right track in this area and it would be evaluated after the year.
Another official, who also preferred to be unnamed, said the volume of NPLs in 2022 was shared in the meeting when the ratio of bad loans was over 8.0 per cent in the country's banking system.
"We told the visiting IMF officials that we want to cut the volume of bad loans in our own interest," the official said.
"The global standard in terms of NPLs is 3.0 per cent but it is over 20 per cent in the state-owned commercial banks and they (IMF) also expressed their concern over the matter."
At the same time, the officials of the Bretton Woods institution also expressed their concern over the volume of suspicious transactions and capital flight. They suggested giving more attention to ensuring governance in the banking system. The IMF team also wanted to know the overall volume of troubled credits in the banks and financial institutions and the steps of the central bank in terms of controlling the inflation.
According to the latest statistics of BB, the total size of loans in the banking sector stood at Tk 14.78 trillion. The volume of NPL in private commercial banks, state-owned banks and foreign commercial banks now stands at 5.13 per cent, 20.28 per cent and 4.91 per cent respectively.
On the other hand, the volume of bad loans in the special banks stands at 13 per cent.
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