The Bangladesh Bank has aimed to bring down defaulted loans below 8 per cent of the country’s total outstanding loans by June 2026 and to eliminate shady loans in the banking sector.
BB deputy governor Abu Farah Md Nasser on Sunday announced the roadmap at a press conference at the central bank’s headquarters in the capital Dhaka.
According to the action plan shared at the briefing, the Bangladesh Bank has set a target to reduce non-performing loans (NPLs) of state-owned commercial banks below 10 per cent and those of private banks below 5 per cent within the next two and a half years.
As of September 2023, the gross NPL ratio in the banking sector was 9.93 per cent, up from 9.36 per cent in September 2022.
The defaulted loan ratio was 10.11 per cent of the total outstanding loans in June 2023.
The volume of non-performing loans surged to Tk 1,55,397 crore by the end of September 2023 from Tk 1,20,656 crore at the end of December 2022.
The amount of the total loans disbursed was Tk 15,65,195 crore at the end of September 2023, and 9.93 per cent of those was classified.
In September 2023, the NPL ratio of state-owned banks was 21.7 per cent of their outstanding loans, while it was 7.04 per cent for private banks, according to Bangladesh Bank data.
Despite a spate of criticisms from various corners, the Bangladesh Bank has provided borrowers with various facilities which have failed to minimise NPLs and instead have increased them rapidly in recent times.
The central bank’s roadmap now states that flexible loan repayment facilities will not be extended.
The Bangladesh Bank will reduce the time for loan write-off to two years from the existing three years, provided that banks keep 100 per cent provision against bad loans.
Implementing such a policy would reduce defaulted loans by Tk 43,030 crore or 2.76 per cent, according to the Bangladesh Bank’s claim.
However, the Bangladesh Bank will redefine overdue loans according to international standards, which will reduce loan classification time to three months of non-payment from the existing nine months, eventually significantly increasing NPLs (more than Tk 60,000 crore).
The central bank also decided to establish asset management company (AMC) so that banks can sell their bad loans or written off loans to clean their balance sheet.
The BB will also instruct banks not to transfer interests imposed on stressed assets to income statements without realising the interests.
In addition, banks must display stressed assets separately in the balance sheet until they are realised.
Banks’ legal team must be strengthened to settle cases in Artha Rin Adalat (money loan court).
The BB will give target to banks for settling cases outside court on basis of alternative dispute referendum system.
The BB will frame policies to take action against wilful defaulters as per the amended bank company act.
Special incentives will be provided to encourage officials to collect defaulted loans.
The BB will make it mandatory to make valuation of collateral or securities kept against loans by enlisted collateral appraisers.
In addition, the BB would suggest merging weak banks with strong banks.