BSS, Dhaka :
To reduce the huge amount of Non-Performing Loan (NPL), the International Monetary Fund (IMF) has recommended strengthening risk-based supervision in the financial sector and enhancing the governance framework by taking some measures, including appointing more independent directors on the boards of banks.
“All loans should be treated as non-performing when 90 days or more in arrears, and the eligibility criteria for the rescheduling of loans and the waiver of provisions should be stricter, based on a strong business case, so that strategic defaulters do not take advantage of longer maturities and softer lending terms,” Ragnar Gudmundsson, IMF resident representative in Dhaka, told BSS in an exclusive interview.
He said the performance of the State Owned Commercial Banks (SOCBs), where most NPLs are concentrated, also needs to be improved through better training of staff, management, and board directors, and supervision of those banks should be independent of ownership.
“The financial sector in Bangladesh is highly segmented, with some banks, including foreign banks and some domestic private banks, very well run and in good health. However, weaknesses are observed in the SOCBs and some of the smaller domestic private banks, including those that have been established in recent years,” he added.
The resident representative said the rising trend of NPLs is one of the issues of concern, which now represent more than 11 percent of total loans.
“The number was about 2 percentage points lower at the end of 2017. If you add this number to the restructured and rescheduled loans, the proportion of loans facing repayment challenges exceeds 20 percent. And on top of that you have loans on which stay orders have been issued by the court system, for which legal proceedings may take several years to complete,” he added.
To reduce the huge amount of Non-Performing Loan (NPL), the International Monetary Fund (IMF) has recommended strengthening risk-based supervision in the financial sector and enhancing the governance framework by taking some measures, including appointing more independent directors on the boards of banks.
“All loans should be treated as non-performing when 90 days or more in arrears, and the eligibility criteria for the rescheduling of loans and the waiver of provisions should be stricter, based on a strong business case, so that strategic defaulters do not take advantage of longer maturities and softer lending terms,” Ragnar Gudmundsson, IMF resident representative in Dhaka, told BSS in an exclusive interview.
He said the performance of the State Owned Commercial Banks (SOCBs), where most NPLs are concentrated, also needs to be improved through better training of staff, management, and board directors, and supervision of those banks should be independent of ownership.
“The financial sector in Bangladesh is highly segmented, with some banks, including foreign banks and some domestic private banks, very well run and in good health. However, weaknesses are observed in the SOCBs and some of the smaller domestic private banks, including those that have been established in recent years,” he added.
The resident representative said the rising trend of NPLs is one of the issues of concern, which now represent more than 11 percent of total loans.
“The number was about 2 percentage points lower at the end of 2017. If you add this number to the restructured and rescheduled loans, the proportion of loans facing repayment challenges exceeds 20 percent. And on top of that you have loans on which stay orders have been issued by the court system, for which legal proceedings may take several years to complete,” he added.
