The Financial Express

A breeding ground for NPL

A breeding ground for NPL

The size of the classified loans belonging to both private and public sector banks in 2009 was Tk 224.81 billion.  It increased to 961.17 billion at the end of June last. The volume was even bigger. The banks wrote off nearly Tk 450 billion during the last 11 years. 

Then again, the banks have taken recourse to yet another easy way---loan rescheduling--- to give their balance sheets relatively a healthy look at the end of every calendar year and, in some cases, grant undue favour to a section of delinquent yet influential borrowers. The central bank has not been enough rigid as far as the rescheduling of loans is concerned.

Since the outbreak of the Covid pandemic in March this year, it has become really difficult to know the real size of the classified loans. The central bank first suspended the classification of loans until June 30. The time was extended up to September 30.  Upon requests from businesses, the Bangladesh Bank (BB) further extended the relief period to December 31 next.

The relief offered through the suspension of loan classification, in addition to the stimulus packages announced by the government for various sectors of the economy, has been timely and justified.  Both the concessions, surely, are now making a positive contribution to the ongoing process of economic recovery.

The loan defaulters, however, have not been entitled to cheap loans offered to Covid-hit businesses and relevant others. But it could be that some delinquent borrowers have used their connections and influence, political or otherwise, to avail of the same. 

The interesting part of the default loan saga is that bankers are not as vocal as many others about the presence of a large volume of classified loans in the country's banking system. They tend to avoid the issue, publicly.  It could be that the issue exposes their failure in selecting the right kind of clients. The default issue also hurts the public image of banks.

But the non-acceptance of ground realities anyway does not dilute the serious impact that the huge volume of classified loans has been creating for long.

It is, however, not true that the banks are not doing anything to recover their non-performing loans (NPLs). Statistics would go in their favour, if the number of cases instituted with the Money Loan Courts (MLCs) is taken into account.

According to a report published in a Bengali business daily, the number of pending cases instituted with the MLCs is nearly 65,000 and the sum involved in these cases is huge---Tk 1,260 billion.

Since the constitution of MLCs in 2003 as fast track loan-recovery institutions, a total of 192,000 cases have been filed involving a sum of Tk 1776.71 billion.  Until June last, the report said, 127,289 cases, involving a sum of Tk 516 billion were settled. But the relevant banks could recover only Tk 182.56 billion out of the decreed amount. 

The MLCs, thus, have failed to deliver goods and meet the objective for which they came into being. These courts are not the fast-track ones. They are caught up in the slow-moving legal web. There are reasons behind it. The number of MLCs and presiding judges is far too inadequate---only 11, of which four are in Dhaka--- to handle such a huge number of cases. In many districts, joint district judges are reportedly entrusted with the responsibility of disposing of MLC cases side by side regular criminal and civil cases. In such a situation the outcome is understandable. Many pending cases are as old as the piece of a legal instrument that saw the establishment of MLCs.

The borrowers facing cases would try to drag the legal process so that they are not required to repay the bank debts or their assets are not put on auction. But allegations have it that a section of bankers, too, are reluctant to see early disposal of cases as their involvement in banks' fund swindling might be exposed. Moreover, some borrowers take recourse to appealing to higher courts in order to stay the proceedings of the MLCs. Banks do also find it difficult to get an early decision from the higher courts.

In such a situation, out-of-the-court settlement of disputes, popularly known as the Alternative Dispute Resolution (ADR), between lenders and borrowers remains the most viable option. But that is yet to get ground in Bangladesh. The government says it does favour such a solution. In reality, there is a lack of seriousness on its part to strengthen the system that is most favoured in the developed world. 

Thus, the legal mechanism and the system of mediation are not working well in Bangladesh to recover the classified loans of the banking system. Strict regulatory monitoring remains a very effective alternative. With that in place, many borrowers would not have dared to default on loan repayment. Banks, too, would have exercised extreme caution while selecting borrowers.

Overall, the situation that is now prevailing in the country does encourage default. But that needs to be changed for the greater interest of the economy. Truth is with rigorous application of laws and rules relating to loan classification, the actual size of NPL in the banking sector is far bigger than what is shown in the banks' books of accounts.


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