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06th-Feb-2020

Highest NPLs are an ominous sign for economy

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BANKS rescheduled a record amount of defaulted loans last year as part of their efforts to contain bad debt and show hefty profit. Last year, defaulted loans amounting to Tk 50,186 crore were regularised, the highest on record for a single year, according to Bangladesh Bank data.
Of the sum, Tk 18,584 crore was regularised under the central bank's relaxed policy announced on May 16 last year, allowing defaulters to reschedule their classified loans with a down payment of only 2 percent of the outstanding amount instead of the existing 10-50 percent. Banks recovered only Tk 479 crore as down payment from the loans rescheduled under the relaxed policy.
Unfortunately one-fourth or Tk 13,284 crore of the soured loans, regularised last year, has already become defaulted, show BB data. This means nearly one-fourth of the rescheduled loans have turned bad again. The continuous rescheduling indicates that banks are trying to clean up their financial balance sheets just so that they can show that they are making a profit.
But unfortunately this is rather like the situation of the Emperor's new clothes. The banks remain, to put it mildly, under-clothed on the inside, but to the country they appear to be decked in expensive three piece suits. Writing off or re-scheduling bad loans will not automatically erase them. It would be far better for banks to allow defaulters to regularise the Non Performing Loans based on what their available cash flows are.
It is unfortunate that the NPLs are the highest they have been in a decade. While historically they have been at their highest in 1999 when they reached 41.11 percent it only stands to show that the government must apply more concrete methods to get the people's money back from the defaulters. We still don't know the real amount of defaulted loans which could easily be around double the established figure. Stopping corruption and nepotism are unfortunately at the top of the government's agenda.