BB report: Non-performing loans rise to almost 10 percent

The proportion of non-performing loans has increased in the banking sector, signalling the poor health and lack of good governance in one of the economy’s most vital sectors.

This has been focused in “Financial Stability Report 2014” released by Bangladesh Bank on Sunday.

According to the report, NPL rose to 9.7 percent at the end of December 2014 from 8.9 percent at the end of December 2013.

Pointing to the embarrassing situation, Bangladesh Bank governor Dr. Atiur Rahman urged the bankers not to sanction any further loans to borrowers who have become defaulters.

He said banks must take tough measures against default borrowers. “There is no logic in sanctioning new loans to the default organizations. You have to strengthen your vigilance in realising default loans,” he told chief executives of different banks who attended the function arranged for the release of the Financial Stability Report at the central bank.

He also advised the banks to verify the eligibility of a borrower before sanctioning a loan.

The Financial Stability Report 2014 reveals that “the reasons for the increase in reported NPL were, mainly, due to the withdrawal of a one-time relaxation of the loan rescheduling procedure, which was given in 2013.”

Another reason the report mentioned is “detection of substantial non-performing loans in a particular bank that has been re-categorised as a state-owned commercial bank (SCB) this year from its earlier status”.

Deputy governor of Bangladesh Bank SK Sur Chowdhury, who was briefing on the report, said the major portion of the non-performing loans or default loans are with the SCBs.

The central bank report reveals that 22.2 percent of the total loans of SCBs became NPL, while it is 4.9 percent for the private commercial banks (PCBs), 32.8 percent for specialised banks (SDBs) and 7.3 percent in the foreign commercial banks (FCBs).

The Financial Stability Report says that bank-wise information indicates that NPLs were widely distributed among the banks.

It also says that eight banks have NPL ratios over 20 percent. Among those banks, there are two SCBs, three SDBs, two foreign banks and one private commercial bank.

“The NPL to total loans ratios of 5 state-owned commercial banks (SCBs) ranged between 10.31 percent and 53.32 percent, whereas it was between 10 percent and 32 percent in calendar year 2013,” the report added.

Governor Dr Rahman said the banks have to take up special programmes if need be, to remove the burden of the NPLs that have been created over the last 40 years.

He also urged the chief executives of the banks to take measures to ensure good governance in the banking sector in consultation with their board of directors.

During the briefing session, SK Sur Chowdhury said that there is no liquidity crisis in the banking sector. Rather, Tk 3000 crore remains in the banks as idle liquidity. Putting a positive spin on the issue, he claimed such idle liquidity does not bear any risk for the banking sector.