Prospect of recovering non-performing loans

Much of the country's economic haemorrhage owes to a gargantuan size of non-performing loans (NPLs). Banks that extended or were made to sanction such loans have bled white and would have collapsed long ago but for the injection of cash by the central bank in order to keep them afloat. However the overall liquidity crisis suffered by the banking sector including non-bank financial institutions (NBFIs) was due to siphoning off the borrowed money abroad instead of investing in the stated productive sectors. The interim government's effort to bring back the laundered money amounting, according to experts, to Tk 1.0 trillion has failed because governments and various agencies of the destination countries did not cooperate in repatriation of the money stashed away in their banks. So the next course of action was to salvage the situation as much as possible by using both persuasive and coercive methods.

The loan-recovery committee formed by the Bangladesh Bank (BB) has made notable progress in solving the problem of default loans. It has already settled some 60 cases involving Tk 3.0 billion. The details of how each specific case was settled are not known but the broad rules governing the process have been made public. Some defaulters were allowed loan-rescheduling opportunity for the last time with a guarantee of repayment, others were granted an extension of loan-repayment period and still others, who opted for a business-exit plan, interest waiver in favour of repayment of the principal amount of loans. The 'guarantee of repayment' clause sounds good but has this been backed by a foolproof mechanism for repayment of the loans in instalment? The defaulters have a long history of adopting such a ploy to defer repayment. They are unlikely to let go any opportunity to abuse the agreement. So, it would be in the fairness of the fresh arrangement to use their existing assets as the collateral. They may buy time until the national election when the equation may once again shift in their favour.

Clearly, settlement of this order is impossible without concessions. But even if a good portion of the embezzled money and NPLs can be recovered through some concessions, the exercise is better than leaving the matter unattended. The positive vibe generated in case of the 60 cases settled seems to have encouraged some biggies known for their massive default culture to show their willingness for such mediated settlements. Reportedly, the committee has received more than 1,200 applications from companies and corporate houses including some large conglomerates. If they are sincere in striking workable and effective deals, the country's banking sector and the economy stand a chance of turning around.

This is certainly an opportunity for the erring big business houses to mend their ways. They can revive business fortune and restore confidence if they go by the respective letter of the rescheduling agreements. In this case, the most outstanding factor the loan-settling committee has emphasised is the verification of repayment capability of the defaulted companies. So, the committee has made recommendation for auditing those business houses' annual revenue earnings by reputed international auditors. Well, if the companies pass the test, they will qualify for the committee-determined ways of repayment of their loans. If everything goes well, at least some semblance of streamlining banking operation and economic order can be restored.