ALMOST all over the world the rising trend of non-performing loans (NPLs) is a matter of grave concern. NPL means bank loans unpaid beyond their dates of payment which may be either deliberate or non-deliberate. Whatever it is, if things continue like this, it badly impacts upon the country's economy. It spreads like a cancer cell and affects the whole financial industry. Accumulated NPL reduces a country's loanable funds and thereby affects new investment essential for higher GDP growth. Secondly, once NPLs assume unusually high proportions, good borrowers feel discouraged to repay their loans. Thirdly, Banks' operating costs increase which tends to push up the rate of interest and in this way the whole financial industry is infected. Selection of clients for bank loans in most cases is instrumental behind creation of NPLs and banks involved cannot avoid their responsibility in this regard.
The governor of Bangladesh Bank Fazle Kabir recently cited another reason behind the exorbitant rise in NPL in our country. It is about the tendency of banks to restrict banks' lending to large industrial groups only. Most banks including state owned banks are simply not willing to sanction loans to SMEs due to their inability to furnish sufficient collateral security. But interestingly, many senior executives of banks have found minimum incidents of default among the SME borrowers. Inadequate monitoring and supervision at the pre-sanction and post-sanction stages of loan disbursement is probably one of the main causes of default culture in the banking industry. The loan officers seem to be incompetent at perfecting the loan collateral. Obviously, the intense competition of aggressive lending is another vital reason why the credit worthiness of the loan applicant is not sufficiently assessed while granting loans.
However, the entire world is suffering from the malady of NPL. For example, our neighbour China and India have NPLs worth 19 per cent and 16 per cent respectively of their total outstanding loans. The uniqueness of the debt problem in all countries requires that separate plans be prepared according to the unique features of their respective debt problems. But the most important thing is that the government and the associated regulatory authorities must coordinate their action plans and extend their helping hands with a view to reducing the extent of NPLs. In addition, strengthening the internal risk management by formulating and adopting a healthy loan policy and an effective loan committee in a bank's management structure is crucial to address bad loan culture in the banking sector. Expeditious settlement of litigation concerning defaulting loans also has to be insured. Money Loan Court Act, 1993, the Public Demands Recovery Act, 1913, the Bankruptcy Act, 1997 and other related laws have to be amended and enforced. Loan syndication of big lenders must be stopped and above all, strict supervision and monitoring of each and every loan will have to be ensured.
Md. Kamruzzaman Sajal
Department of Banking & Insurance
University of Dhaka
[email protected]
- Saturday, 23 November 2024 |
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