Businesses and professionals raised concern on Saturday over the growing volume of non-performing loans (NPLs), which could jeopardise the economic health of the country.
To overcome the unpleasant situation, they suggested prioritises Alternative Dispute Resolution (ADR) as another avenue for resolving commercial disputes faster and cheaper.
To make the ADR mechanism more effective like many other countries, they also suggested establishing a legal framework for the operation of such institutes in Bangladesh.
The suggestions came at a roundtable on "ADR in managing the risk of non-performing bank loan" held at the Dhaka Chamber of Commerce and Industry (DCCI) auditorium in the city.
Bangladesh International Arbitration Centre (BIAC) and the DCCI jointly organised the roundtable discussion.
Senior Secretary of Legislative and Parliamentary Affairs Division Mohammad Shahidul Haque was the chief guest. The Financial Express was the media partner of the programme.
Moderating the discussion¸ chairman of BIAC Mahbubur Rahman said troubled loans will not become performing unless the existing laws and regulations are implemented properly.
He highlighted the importance of justice against the financial fraudulence for the sake of the country's financial sector.
He said if the borrowers are legally bound to pay off the bank loans, they will get no fundamental rights, rather they will go behind the bar.
He said the appointment of the chairmen and board members of the state banks from the party line also sometimes create problems because either they are officials of the government, party members or parliamentarians.
"It becomes difficult for the department concerned to take regular actions," he said.
He said the financial institutions can be properly managed with the appointment of knowledgeable persons who can contribute and deliver.
Speaking as the chief guest, Senior Secretary Mohammad Shahidul Haque termed the NPL 'virus' of state lenders, which had spread to the private banks as well.
"NPL within 2.0 per cent is allowable but it is more than 10 per cent, which is horrible," he said.
Highlighting the accountability of the bankers, he said the banks must scrutinise the credit proposals before they sanction, which can avert the possibility of loans becoming classified.
"Bangladesh Bank and the commercial banks should remain vigilant of this issue," he added.
BIAC Chief Executive Officer Muhammad A. (Rumee) Ali said the size of NPLs is large enough to affect the liquidity in the banking industry.
Soured loans put pressure on the availability of the fund for lending and cost of borrowing as well.
DCCI president Abul Kasem Khan termed the growing volume of NPL a major challenge for the banking industry.
He said the size of NPL rose to Tk 885 billion or 10.78 per cent of the total outstanding loans as of March, 2018.
Six state-owned commercial banks account for 49 per cent NPL, while 40 private commercial banks (PCBs) make up 42 per cent.
He said the government annually allocates Tk 170 billion for recapitalisation of the SCBs from the taxpayers' money.
Over the last 14 years, the banks recovered Tk 94.90 billion written off loans.
The total written-off debt was Tk 440 billion.
"Recovery is extremely poor. Banks have failed to take proper measure in this respect," he said.
"ADR can be used as an alternative recovery mechanism … It will help reduce the number of disputes and cut NPL," added the DCCI president.
Presenting the keynote paper, Shafayat Ullah, EVP and head of legal of the City Bank Limited, said the ADR has multiple benefits as it is cheaper, less time-consuming, and confidential.
He said all organisations should incorporate ADR clause into the commercial contracts with the provision of both mediation and arbitration under an institutional framework like BIAC.
Former DCCI president Asif Ibrahim said the use of pre-litigation mediation by ADR and using established institutes like BIAC is important in resolving commercial disputes in a faster way.
Giving an example of India, where the submission of passport information is made mandatory for people borrowing over INR 500 million, he said political impunity must not be the case in the banking system.
"Banks, bad loans and recovery have to be separated from any kind of political impunity," he added.
Salma Nasreen, additional secretary of Financial Institutional Division of the ministry of finance, said sound economy depends on the sound financial sector but the NPL threatens the soundness.
She said that the ADR mechanism was being successfully applied to many countries like Malaysia, the Netherlands, Vietnam, Nigeria, Namibia and Mauritius while mediation and arbitration mechanism is also established in the USA, the UK, Germany, Italy and France.
Md. Abdul Wadud of the City Bank Limited said banks within the existing structure start the loan recovery process without knowing the terms of mediation but the problem is the absence of common ground and trust that the professional mediators maintain.
"So, an institutional process can make things much better," he added.
Citing the Basel-III disclosure report in 2017, Syed Yusuf Saadat, research associate of the Centre for Policy Dialogue, said the NPL size in two banks reaches 80 per cent or more.
The NPL in South Asian countries is as high as 8.0 per cent while it is less than 4.0 per cent in the Southeast Asian economies.
"They're doing something effective …We should look at it," he added.
Additional Secretary of Legislative and Parliamentary Division Nasreen Begum, Managing Director and CEO of Midland Bank Limited Ahsan-uz Zaman, special adviser to the board of trustee of ULAB Professor Imran Rahman, among others, spoke at the roundtable.
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