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Writing off bad loans: Bankers want it to be a judgement call

Siddique Islam | Published: July 22, 2019 09:51:29 | Updated: July 22, 2019 15:26:01


Picture used for illustrative purpose only

Country's top bankers Sunday proposed amending the existing loan write-off policy so that they could rid themselves of bad loans that, according to them, were not recoverable, officials said.

Under the proposal, the bankers will be empowered to write off the bad loans overlooking the existing time-bar.

Chief executive officers (CEOs) and managing directors (MDs) of the scheduled banks made the proposal at a bankers' meeting, held at the Bangladesh Bank (BB) headquarters in Dhaka with BB Governor Fazle Kabir in the chair

At the meeting, the central bank governor assured the senior bankers of revisiting the existing policy on loan write-off, according to the BB officials.

Currently, the banks and non-banking financial institutions (NBFIs) are allowed to write off their bad loans after three consecutive years. Earlier the banks had to wait for five years to write off any loan. The latest amendment to the write- off policy was made five months back.

"Yes, we've proposed revision of the existing loan write-off policy that will help reduce the volume of non-performing loans in the country's banking system," Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh (ABB), told the FE while replying to a query.

Mr. Rahman also MD and CEO of Dhaka Bank Limited said such bad loans will come under monitoring after the loans have been written off..

"The proposed measure will help the banks make their financial statements a bit healthy," the senior banker explained.

Talking to the FE, Nurul Amin, former chairman of the ABB observed the proposed measure, if implemented, would relax pressure on the banks to recover such bad loans while borrowers also would not feel the urge to repay such credits.

He also said this would also help the banks show their NPLs in lesser volume.

The bankers' latest move came against the backdrop of rising volume of the default loans in the country's banking system in the recent months.

The volume of NPLs climbed by more than 18 per cent to Tk 1,108.73 billion in the first quarter (Q1) of the year from Tk 939.11 billion in the previous quarter, the BB data showed.

The banks and NBFIs have been empowered to write off a loan amounting to Tk 0.20 million instead of Tk 50,000 earlier on without filing lawsuit for recovery.

The central bank of Bangladesh introduced guidelines for writing off classified loans in 2003 aiming to improve loan recovery and make the financial statements of banks more transparent and accountable.

Writing off loans is a global practice. But it will depend on the capability of the banks concerned to write off its bad loans.

Before making any final decision in this regard, the bank management has to ensure 100 per cent provisioning against the amount to be written off.

At the same meeting, the central bank asked the banks to reduce their amount of NPLs through boosting their recovery drives across the country.

"Recovery drive will have to be strengthened to improve their liquidity situation that will also help reducing the interest rates on lending," a senior BB official told the FE while replying to a query.

After the meeting, BB spokesperson Md. Serajul Islam told reporters that the central bank will observe the situation with regards to lowering the lending rate to the single-digit as per the earlier announcement of the Bangladesh Association of Banks (BAB).

On June 20, 2018, the BAB decided to cut back on the interest rates on both lending and deposit at 9.0 per cent and 6.0 per cent respectively from July 01in the last calendar year.

The BB spokesperson also expressed the hope that the banks will implement their announcement properly.

"We're still working to bring down the interest rates on lending as per our sponsors' commitment," the ABB chairman Mr Rahman told the reporters after the meeting.

He also said the amount of NPLs would drop in the first-half of the current calendar year.

siddique.islam@gmail.com

 

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