Concern over rising volume of non-performing loans (NPLs) has intensified in recent days. Almost everybody is talking about the harmful effect of the large volume of banks' soured loans on economy, particularly on all-important private investment.
But the rot which has become a systemic one is found to be difficult to contain. The volume of soured loans, thus, has become even bigger with the passage of time.
It is natural that flow of credit to the private sector would continue to rise and the same is necessary for the sake of ensuring economic growth. However, the central bank does set the credit growth target from time to time according to the needs of the economy. It employs policy instruments with a view to maintaining control over growth of credit.
But what is viewed as an important element in lending by banks is its quality. That is the area where most Bangladeshi banks have faltered and this has led to the accumulation of soured loans.
According to the latest statistics available with the Bangladesh Bank (BB), the volume of NPL was Tk 939.11 billion as of December 31 last. Its size was 743.03 billion on the same day a year back. Since the size of the total outstanding loans increased in 2018, it is natural that the volume of NPL would also rise. But what remains a matter of concern here is the share of the NPL in the total volume of outstanding loans. It was more than 10 per cent, 10.30 per cent to be exact, at the end of 2018. The percentage was 11.45 per cent at the end of the third quarter of that year. Window-dressing and rescheduling of loans by a number of candidates of the last parliamentary elections contributed to the decline in the NPL size.
However, many tend to believe that the actual size of NPLs in banks would be bigger than what is being shown in their financials. The size of bad loans in particular would be much bigger if the amount of rescheduled and written-off loans is taken into account.
The growing size of NPL, on the one hand, is telling on the financial health of banks and reducing their ability to provide credit to the private sector, on the other. That is why the Metropolitan Chamber of Commerce and Industry (MCCI), Dhaka, in its latest quarterly economic update has cautioned that that higher default loans in banks would impede investment flow in the country.
The reasons for unrestrained growth of NPL in banks are more or less known to all. The issue is being discussed widely, but the problem, more or less, has remained unresolved. But, why is it so?
The answer, to a large extent, could be traced in the speech delivered by Dr. Junaid Kamal Ahmed, the World Bank country director for India, at a lecture on 'Ethics in Banking', organised by the Bangladesh Institute of Bank Management (BIBM) early this week.
There is no denying that managing any organisation, whether it is a bank or a business entity, in ethical line remains to be the most desired line of operation. However, it is easier said than done.
What the Bangladesh-born economist emphasised in his speech was that for running the banking and financial system ethically in any country it is important to have 'ethical political system'.
But, do we have an ethical political system in place? Unfortunately, we do not have any. That is where the problem lies.
Ethical political system promotes transparency and accountability and discourages cronyism. With such a system in place, all institutions, financial or otherwise, and regulatory bodies, do function properly following rules and regulations. Even partial operation of an ethical political system can do wonders in a country like Bangladesh. The nation, in fact, has been eagerly waiting for such a system to be in place, even if it is in its truncated form.