ADR be a good tool to recover banking loans

Raihan M Chowdhury | August 22, 2017 04:51:02

Alternative Dispute Resolution (ADR) mechanism will be a good tool to recover stuck-up loans as the existing legal procedure is very time-consuming and costly.


The volume of growing nonperforming loans have become a major threat for the banking industry as many lenders, particularly those owned by the government, are facing huge capital shortfall because of bad debt, analysts said.


“The banking sector would be in great trouble if we fail to address the concern,” said Toufic Ahmad Choudhury, director-general of the Bangladesh Institute of Bank Management (BIBM), at a recent workshop at his office in Dhaka.


He urged the bankers to concentrate more on loan recovery.


The volume of NPL soared by over 19 per cent or Tk 119.76 billion at the end of June this year. The amount rose to Tk 741.48 billion.


The rising NPL is not only rattling the banking sector but also depriving the people of loans at lower rates, they said.


“We think the privately-run Bangladesh International Arbitration Centre (BIAC) is working sincerely and their efforts should be appreciated to bring discipline in the country’s financial sector, Mr Ali Reza Iftekhar, a former chairman of Association of Bankers, Bangladesh (ABB) recently said.


 “We will also place a proposal to Bangladesh Bank to allow a company who will buy the stuck-up loan to relieve banks from the growing non-performing loans (NPLs),” the ex-ABB chief said.


Citing the reasons of growing NPLs of Bangladeshi banks, banking sector analysts said the culture of using the reference in favour of a borrower should be stopped.


“The cash-flow ability and the goodwill of the borrowing companies should be the main criteria to approve loans.”


“Land and mortgaged property cannot be the repayment guarantee against the loan,” a career banker asserted.
Commenting on the deteriorating financial conditions of the state-owned banks, industry insiders said there should be only one state-owned bank to run it professionally.


After provisioning and tax payments, the state banks registered a net loss of Tk 5.11 billion in 2016, which was Tk 1.25 billion in 2015.
Two other state-owned specialised banks -- Krishi Bank and Rajshahi Krishi Unnayan Bank -- counted Tk 4.18 billion in losses in 2016, against Tk 1.67 billion in 2015.
Bangladesh has also excess number of private commercial banks at present, which has given rise to unhealthy competition. Time has come to merge the banks as the financial health of many of them is very weak as some banks are making losses year after year.