As per the latest Bangladesh Bank statistics, the country's total classified loan is Tk 1.210 trillion, the rescheduled loan is Tk 2.130 trillion and the written off loan Tk 550 billion. So, the total stressed assets of the country are Tk 3.890 trillion which is 26.90 per cent of the total credit.  With such a huge amount of non-performing loan, we can hardly make sustainable development of the banking sector, keep our economy vibrant and make desired development of the country. We have no alternative but to get rid of the curse of the huge NPL (Non-performing Loans) to reach the desired destination of development. With this end in view, many initiatives have already been taken. The latest remarkable initiative is an amendment of the Bank Company Act-1991 and the addition of some new provisions in the Act in 2023. Appreciating the initiative, here are some points which may be given due attention by the concerned authority.     

Bank Company (Amendment) Act 2023 is a courageous initiative to deal with the deliberate defaulters but challenges ahead are its enforcement. The prime objectives of the bill are controlling non-performing loans and stabilising the financial sector of the country. The financial sector of the country has been passing through an unusual burden of stressed assets. The problem is dragging the sector down and leaving an adverse impact on the overall economy. Many brilliant achievements of the banking sector are dimmed due to the adverse impact of NPL.

During the last couple of years, many suggestions and recommendations came out from the discussion of experts, economists, and think-tanks on fixing this burning issue of NPL. Most of the discussions focused on taking some initiatives going out of the box as taken by the Chinese authority under the "Name and Fame" policy which concentrated more on social and psychological issues to fix NPL. Those initiatives have created huge social and psychological pressure on the defaulters and proved successful in controlling NPL. Pakistan, Sri Lanka and Nepal also adopted similar policies. Likewise, the Bank Company (Amendment) Act -2023 added new provisions and focused on creating social and psychological impacts on defaulters.

As per amendments, the deliberate defaulters will be restricted from traveling abroad, getting trade licences and obtaining company registration from RJSC (Registry of Joint Stocks Company) and BSEC (Bangladesh Stock Exchange Commission). Bangladesh Bank may submit the list of deliberate defaulters to different organisations and the concerned banks will file criminal cases against the willful defaulters.

The amendments are anticipated to improve the overall situation substantially. However, the success will largely depend on the identification of deliberate defaulters and proper enforcement of the provisions of the law. Identification of the willful defaulters will be a tough and sensitive job. Though a definition has been given in the amendments, it is imperative to give a clear and comprehensive guideline to identify the deliberate defaulters. In the absence of concrete regulatory guidelines, identification of deliberate defaulters may be influenced by pressures, personal liking-disliking or favouritism. Hence, the apprehension of wrong identification or non-identification of willful defaulters may remain there. As a result, the amendments may fail to reap its desired goal. RBI (Reserve Bank of India) has issued comprehensive guidelines on "Deliberate Defaulters" and that may be a useful tool for us in this regard.

When the normal courses of recovery of NPL fail, the necessity arises to take recourse to the legal process. But recovery through the prevailing legal process is lengthy, complex and expensive. Sometimes the processes are hindered and further delayed by adopting various unscrupulous means by the willful defaulters at different stages of legal proceedings and its execution. Despite having the ability, in most cases, the deliberate defaulters do not repay their loans and willfully throw the issue to the court. Then they adopt various means like submitting writ petitions on different excuses, delaying the process and hindering recovery. To expedite settlement through legal proceedings and minimise and overcome the unexpected barriers in the legal process of recovery, the banks and other concerned authorities may pay attention to the following issues:

  1. Setting up more money loan courts and posting more judges there.
  2. Restricting the scope of the writ petitions on money loan cases to some specific courts;
  3. Bankers may be allowed to attend the hearing of the writ petitions and place their arguments;
  4. Imposing a provision for payment of a certain amount of outstanding loan each time for qualifying submission of writ petitions.
  5. Encouraging alternative means of recovery out of court /legal process.
  6. Discouraging/restricting repeated reschedule facilities.
  7. Before issuing any new reschedule or interest waiver circular or allowing any special facility for any sector by the regulators, commercial bankers should be consulted and kept in the respective decision-making body.

A bank's core jobs are collecting deposits, giving loans and running other ancillary businesses. But ironically, most of the bankers in Bangladesh remain largely busy in spending a considerable amount of their time on the recovery of NPL keeping aside their core activities. Most of the bankers are not experts in the recovery. So, their recovery drive remains ineffective in most cases. Hence, the necessity of setting a separate recovery authority in the country has been felt for long. A lot of activities have already been done for setting up an Asset Management Company. Concurrently with the above initiatives, immediate attention needs to be given to expedite the establishment of the proposed Bangladesh Asset Management Corporation (BAMC), enactment and enforcement of related laws and provide some special powers to BAMC for recovery of NPL. Then the toxic assets of different banks/FIs, upon complying with set criteria, are to be transferred to the BAMC and the corporation will exert its all-out efforts for the recovery of those illiquid assets. Thus the bankers will be freed to pay their full attention to their core activities and make expected contributions towards the banking sector and overall development of the country.

Around the globe, countries like Sweden, Finland, the USA, Belgium, Portugal, Spain, the United Kingdom, Malaysia, India, Germany and Indonesia have set 'bad banks'/AMCs in response to the financial crisis over time and most of the countries achieved success. Prominent international commentators have suggested the Swedish 'bad banking model' be adopted internationally. After the 2008 crisis, Citigroup, Bank of America and Swedbank also took on this idea and established Bad Bank individually. We hope, in view of the global experience of bad banks, concerned authorities will take active steps for setting up the proposed BAMC at their earliest.

Over the last couple of years, a good number of initiatives were taken favouring the defaulters to improve the NPL situation. Special rescheduling facility by paying only two per cent down-payment, waiving suspense and unapplied interests and allowing long periods for repayment or exit etc. were the most remarkable initiatives to ease the situation. Even after allowing so many waivers and flexibilities, many of the defaulters did not come forward as expected to regularise their long pending classified loans. Some of them regularised their loans with the motive of paving the way to draw fresh loans.

Enough time, facilities and scopes have been allowed to the defaulters. But they seem reluctant to repay their loans. The banking sector and economy of the country do not have that much ability to bear such an unusual burden of NPL for long. The situation is getting from bad to worse day by day. Now, for the sake of sustainable development of the banking sector, it is crucial to go for the enforcement of newly added provisions of the Bank Company (Amendment) Act-2023 and existing provisions of other laws strictly, make necessary amendments to other related laws, and set the proposed Bangladesh Asset Management Corporation (BAMC) in shortest possible time. All these steps, along with a strong political message may have positive impact to free the banking sector from the woes of stressed assets and to make the sector vibrant again.

 

The writer is a senior banker.
niranjanpurna@gmail.com