The International Monetary Fund (IMF) has put emphasis on addressing the issue of non-performing loans (NPLs) immediately for ensuring financial stability.
"…Addressing non-performing loans is a first order importance for financial stability," Tobias Adrian, financial counselor and director, money and capital markets department of the IMF, said. He made the observation while releasing a Global Financial Stability Report (GFSR) at the IMF headquarters in Washington DC on Wednesday morning.
Mr Adrian also said many countries have tackled the issue by developing a secondary market for NPLs and by being aggressive in terms of writing off NPLs and provisioning for the non-performing loans.
The IMF director explained: "There has been a change in accounting standards--international accounting standard-- in terms of how NPLs are provisioned for and we expect that it is going to improve the situation over time."
The IMF senior official was responding to a Financial Express (FE) query on the rising trend in the NPLs of Bangladesh at the press conference.
The volume of classified loans in the country's banking system jumped by over 26 per cent or Tk 196.08 billion to Tk 939.11 billion as of December 31 in the last calendar year from Tk 743.03 billion in 2017.
The share of NPLs in the total outstanding loans came down to 10.30 per cent as of December 31 in 2018 from 11.45 per cent three months back. It was 9.31 per cent on December 31, 2017.
The classified loans cover substandard, doubtful and bad/loss portions of total outstanding credit, which stood at Tk 9,114.30 billion on December 31 last. The amount was Tk 7,981.96 billion a year ago.
"….there continues to be a high stock of NPAs in India, and there has been some progression but we would welcome further progress on the non-performing assets in India," Mr Adrian said while replying to another query raised by an Indian journalist at the press conference.
In emerging markets, overseas investment run by managers tracking popular indexes has increased dramatically over the past decade, according to the GFSR.
It also said widening the range of investors can be positive factors for emerging markets, yet that trend leaves these economies vulnerable to sudden reversals to capital flows in response to global trends.
Emerging markets facing volatile capital flows should limit their reliance on short-term overseas debt and they should ensure that they have adequate foreign currency reserves and bank buffers, the report noted.
"Monetary policy should be data-dependent and well- communicated," Mr Adrian added.
He also said policymakers should act decisively to renew their commitment to open trade, to discourage the buildup of debt and to communicate clearly any shifts in monetary policy.
