However, we had for long anticipated that this would happen anytime sooner or later. Now that the capital shortfall has erupted at a bigger scale, we want to see how the regulator — Bangladesh Bank would tackle it. Rescheduling loans should not be the norm and it also played little role in recovering non-performing loans (NPL). Just last month the BB has asked commercial banks to set targets of loan recovery from the Top-20 defaulters for 2018 – once their respective boards have been constituted. Each bank has been asked by BB to submit its loan recovery plans and therefore submit quarterly progress reports on amounts of recovered loan on a quarterly basis. Unquestionably a good decision, but our question is precisely what steps the respective banks (with highest NPLs) have taken to strengthen the mechanisms involved for loan recovery?
In fact, the BB should have gone deeper taking a closer look into precisely what banks with highest NPLs were doing with their litigation teams to increase loan recovery rate other than just issuing instructions. The recovery scene, as of last September, says a mere Tk 10,340 crore has been recovered out of a gigantic Tk 80,307 crore. It means a little over one-eighth has been recovered so far.
While BB has instructed these banks to take steps to contest writ petitions by defaulters at the High Court, it shows banks’ legal teams are flagging behind in this area. The banks facing capital shortfall will have to come up with new, workable loan recovery mechanisms and strengthen their legal teams; otherwise bad loans will continue to ballooning.
Growing bad loans are impeding further economic growth as banks’ lending capacity gets tightened and the victims are ultimately the good clients who are failing to obtain loans at lower rates. Bangladesh has one of the highest NPL ratios in the world. Referring to a study conducted by the Bangladesh Institute of Bank Management (BIBM) last year, on an average, NPLs were 12.79 percent of the total loans in Bangladesh whereas the internationally tolerable limit is 2-3 percent.
To conclude with, enough has been written, discussed and proposed for recovering non-performing loans. Now we want to see the set of recommendations being implemented before the sector collapses.
