We should emphasise upon the  fact  that  planning  right  solutions  requires   knowing   first the  real  causes  of  our   failure  to recover   the  NPL. Hence, lenders' 

reporting to central bank on securities 

of each loan   ought to be designed 

with   an analytical framework

 

writes

Haradhan Sarker

 

As   reported  by  Bangladesh  Bank, our  banking  loans  and  advances   are  at  least  99 per cent  secured.  But loan   default   has been escalating at an unusually high speed. What is the mystery?  Discourse on this issue is also enormous. There  is  hardly any focus upon utility   and  effectiveness   of   loan  securities  from  the  perspective  of  intensifying   recovery  drive.   What  is  the  rationale   behind   taking  security  while  loan   default  is  on  the  rise ?  Can we   say that securities are worthless?  We have laws to fight defaulters. Are the laws    weak?  

Banks   take securities   for loans, and the mechanism to encash them to recover the   defaulted loan should get serious attention towards resolving the NPL problem.  If non-security reasons dominate, they should be brought to light. We  observe no proper  and factual  reporting   on  the causes  of  security  encashment  problems  and   ineffectiveness  or inadequacies  of any  security  held.

Table 1    clearly  indicates that   on  an  average ,  the  banking  sector   has   unsecured   loans  and  advances   to  the  extent  of   even  less than  1 per cent. Secured loans are more than 99 per cent. The least   amount of unsecured loans is   extended by State Owned Banks (SOBs). FBS ( Foreign  Banks)   disbursed   the  highest   amount  of unsecured  loans  (5.64 per cent)  but  their  recovery  performance  is  the   best   among  peer  banks. Now  it is   very   essential  to    look  at   recovery  or  NPL   or  ROA  of  the  said  banks.

Table  2  indicates  that up to 2023, non-performing  loans and advances  were   within  control  but    had  gone   beyond  controllability  from 2024. SOBs in particular   show the most alarming   proportion of NPL in 2024. In  just 1  year's  time gap  ( 2023  to  2024), classified  loan   surged to  about 250 per cent. Comparatively, NPL is the lowest for FBs. The recovery condition of   loans and advances (Table 2)   mismatches with the   data   shown in Table 1. It is to be noted that by the end of March this year, bad loans in the banking sector soared to a record Tk 420,335 crore. Of this, Tk 300,028 crore was tied to ten banks, according to the latest data from Bangladesh Bank (The  Daily  Star   18-6-2025).

The  most   serious  problem   about data   is  that   we  get  superficial idea    of recovery    of   agricultural  credit,   microcredit    and  credit  to   CMSME  sectors  but even  a  rough idea on  recovery  of  other  loans  is  unavailable in  reporting. Data transparency problem exists there. 

In  these  days  of   digital  technology, we  should   have   free access to   comprehensive  data  on  loans  and  advances,  particularly  on  recovery, recovery  percentage  (loan  wise),  overdues,  time-based disbursement , but here  lies   shortcoming. Credit figures to  CMSME   are  also  partial  and  vague. Well-designed  and  integrated  data  system  may   reveal  many  weaknesses. We  fail to   get recovery percentage  in  accurate   format.  Now,  the  month  of   August is  going  to be  over, but we  are  yet  to get  data   up to  June, 2025  through  Bangladesh  Bank  Quarterly, and  Scheduled  Banks  Statistics. Unusual delay in   getting   data and   taking decisions based  on those data and  information rather complicates the  scenario  further. 

We must look for the   hurdles to encashing securities    for realisation of   defaulted loans.  The key  question  is :   why  NPL  is  mounting   while  more  than  99 per cent  of  loans   and  advances  are  secured?  In this regard , there may be  some   queries (not  an exhaustive list)  as  under :

1.Was  there  any  wrong  or   fabrication  or  manipulation   in individual  bank's   reporting   of  loans   and  advances   based  on  several  categories of  securities   held ?

  1. Was there any  difference  in  the  strength  of    different  types  of  securities?

3.Was there  any  lapse  on  the  part  of lenders   in assessing  the worth  of  each security?

  1. Was  there  any compliance  problem  of  guarantee-based  security ?
  2. Was  there any  problem  or   resistance  or  objection  or litigation   by  borrowers  to  sale  of   goods/assets  kept  as  securities?

6.Had  there  been  any  lapse  on  the  part  of  lending  bank   in  case  of   processing   and  documentation  of adequate  securities   for loans and advances ?

  1. Was  there  any  undue intervention (political  or governmental)  in   sanction  and disbursement  of  loans?
  2. Was there  any fraud or forgery  in   offering  securities   and  documentation   and  so  on ?
  3. Did the quality of securities deserve the highest degree of   weightage?

10.Was there  any attempt  to  refine   the  list  of    hitherto known and  used securities?

If   answer is 'yes'  to any  or  more  queries   above, recovery   of  lent money   would  be   beset  with  problems   and NPL  would  emerge. Everybody would understand the probable scenario.  But the important  point  is whether the  reporting  bank is instructed  to  submit   loan-wise  security together with  the above queries-answers and  practical  worth  of each security?  If not, security-based classification of loans and advances   becomes meaningless.

We   know that after   the  fall  of  Hasina  regime  in  August 05, 2024,  there   was a  huge  loan  default  (for  example, two   groups  Beximco  and  S.  Alam   together   had  defaulted  amount  of  about  Tk. 35,000  crore ).We are not aware  of    the  adequacy  of  the  value  of     their securities. Are these types of politically motivated and assisted mischievous borrowers many in number?  They make the securities   totally insecure.

It  is  learnt  from  banking  practitioners  that   when bank  fails  to  realise  default  loan,  they  try to  sell the  security  on  auction  basis. When  auction is in process, the    concerned borrower  complains  about  lower  price  of  their  securities  in  auction   method  and afterwards, goes  to  file a case  against  the concerned  manager. Cases go on for years. Thus, the  existing  legal  processes  seem  to be   very  weak  and  ineffective.

It  may  be  concluded  with  a  note  that present  focus  aims  not  to directly   look  for  remedies  for  NPL,  rather  to  pinpoint  our  own (as  lenders  and as  regulators) incapacity,  irresponsibility,  negligence,  yielding  to   undue  pressures,   with  a  view  to   enhancing  the effectiveness  of  securities  taken  or  to  be  taken. We should emphasise upon the  fact  that  planning  right  solutions  requires   knowing   first the  real  causes  of  our   failure  to recover   the  NPL. Hence, lenders' reporting   to central bank   on securities of each loan   ought to be designed  with   an analytical framework. 

 

Haradhan Sarker, PhD, is ex-Financial Analyst, Sonali Bank & retired Professor of Management. sarkerh1958@gmail.com