a year ago

Of ABB's press meet and NPL

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The content presented at the first-ever formal press conference of the Association of Bankers, Bangladesh (ABB), held early this week, was marked by messages of both hope and despair. Never had this association of top officials of private banks volunteered to explain the 'banking sector outlook' of any particular year. The ABB has decided to be open, and it deserves appreciation for being so. Hopefully, it would continue to hold such briefings, whenever necessary.

The positives that the ABB tried to highlight at the press briefing included the easing of the 'severe stress' created by the greenback shortage in the local market and a decline in trade-based money laundering because of the central bank's intervention and other appropriate measures and improvement in the liquidity situation in the banking sector.

Given a plethora of problems that have been hurting the banking industry, it is hard for anyone to sing praise for too long for anyone or any entity at a press conference/briefing and organisers are sure to face uncomfortable queries from newsmen. And exactly, that had happened at the ABB's maiden press meet. The ABB top notches encountered questions relating to non-performing loans (NPL) and trade-based money laundering in particular.

The NPL issue, naturally, got far more prominence than any other at the press conference. The ABB leaders did not hide their helplessness in resolving the NPL crisis and admitted the banks alone couldn't resolve it.

True, the NPL problem has emerged as a grave challenge in the country's financial sector. Banks and non-banking financial institutions (NBFIs) are finding it very difficult to deal with the challenge. According to Bangladesh Bank statistics, the NPL increased 16.8 per cent year-on-year to more than Tk 1.2 trillion at the end of 2022. But its actual size would be even bigger if the written-off amount, NPL volume and rescheduled loans are taken into account together. The ABB found the finance ministry's move to relax the rules to motivate the large defaulters to repay their debts to banks partly responsible for the further deterioration of the NPL situation. Another big problem the ABB listed was the lengthy litigation process and courts' stay order in favour of the delinquent borrowers. The top bankers, it seems, forgot to mention the lapses on the part of the banking sector regulator.

ABB chief Selim RF Hussain mentioned the relaxation of rules in the banking sector to motivate the big loan defaulters for repaying loans. But the move had failed to pay dividends, he said.

The very approach to resolving the problem of a huge default loan buildup has been benefitting the defaulters, delinquent or otherwise. The hallmark of that approach was the introduction of loan restructuring, primarily designed to bail out some top loan defaulters. Faced with the collapse of the scheme, the central bank had taken an indifferent stance and did not punish the relevant borrowers. The authorities had come up with the relaxation of loan classification rules later, citing the pandemic and Ukraine war as reasons. The NPL situation has reached such a pass that its solution is beyond the reach of individual banks. Thus, the ABB's call for reforms and united efforts of all to overcome the problem needs to be taken seriously by all concerned.

Observation of the ABB about yet another issue --- trade-based money laundering--- raised at the press meet by newsmen ---might have surprised many. The people concerned would take the statement with a grain of salt. That the bankers lacked adequate knowledge about trade-based money laundering until recently and only because of the central bank's strong actions they became aware of big businesses' transfer of funds abroad through trade transactions is hardly convincing.

The trade-based money laundering has been under intense discussion in the country following the publication of the first Global Financial Integrity report in 2014. An estimated US$9.66 was allegedly siphoned off in 2013, mainly through trade transactions, from Bangladesh, according to the report. Nearly USD 50 billion were transferred illegally through trade transactions between 2009 and 2015, according to the GFI estimate. Every year, a huge amount of money is thought to be transferred abroad using the same route. In all those years, experts have been advising banks to be watchful as far as trade transactions are concerned. Tracking over- or under-invoicing by bankers in this age of information technology is not a big deal.

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