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The regional development bank came up with the suggestions in its policy brief placed at a seminar titled ‘Resolving Nonperforming Loan Puzzle: Learning from International Experience’ at a Dhaka city hotel on Tuesday
The Asian Development Bank (ADB) strongly recommends merging or divesting the country’s state-owned commercial banks (SCBs) in an effort to bring down the soaring non-performing loans in the banking sector.
It also suggests not appointing bank directors on political considerations.
The regional development bank came up with the suggestions in its policy brief placed at a seminar titled ‘‘Resolving Nonperforming Loan Puzzle: Learning from International Experience” at a Dhaka city hotel on Tuesday.
To bar borrowers from taking loans from several banks using the same properties as collateral, the ADB in its policy recommendations suggests the government develop a data warehouse for collaterals.
“The government should consider consolidate, merge, divest or privatize the country’s state-owned commercial banks (SCBs) to bring down their non-performing loans (NPL),” reads the brief.
“The government should compose the SCBs board of directors with competent professionals instead of those appointed on political consideration alone,” it suggests.
The ADB finds despite several measures, including loan classification and provisioning with international standard, the NPL in the banking system is still very high.
“Bangladesh needs to explore international best practices in NPL management and the resolution strategies implemented in other countries in Asia and the Pacific,” the brief says.
ADB Chief of Finance Sector Group Junkyu Lee presented the keynote paper at the seminar highlighting the NPL management and resolution process in neighboring counties.
Speaking on the occasion, Bangladesh Bank Deputy Governor SM Moniruzzaman admitted that NPL was high in the SCBs compared to private commercial banks.
“Reducing NPL is difficult and it has increased in 2019, but we are trying our best. Currently the net NPL is 2.5% and the gross NPL is 11.69 % in the country. We have seen that NPL in SCBs is higher than that in private banks,” he said.
At the end of June this year, of the total NPLs, defaulted loans of six state-owned commercial banks stood at Tk53,744.64 crore or 31.58% of their total disbursed loans, according to BB data.
To make sure NPLs do not accumulate in the first place, efforts are needed so that the loans are given only on commercial consideration rather than administrative or political influences, the ADB says.
It proposes that the existing Bankruptcy Act 1997 should be strengthened and the revised act should set time-bound procedures for Money Loan Courts to expedite the resolution of settlement cases.
The government and the central bank should ensure rigorous enforcement of existing banking rules. The government should ensure punitive measures against the central bank in case of noncompliance according to the annual performance agreement the central bank signed with the government, the ADB says.
The ADB also suggests establishing a state-run assent management company (AMC) to expedite NPL resolution process in the banking sector as other Asian countries have successfully implemented such framework.
After taking over the NPLs and repacking those, the AMC can sell those in the market at more realistic price to encourage banks to expedite the reticulation process.
ADB says it will consider financing such AMC, along with its ongoing technical assistant, if the government proposes so.
“We will be happy if we have such request from the government considering its merit. Currently, we are providing technical assistance to the government for the AMC framework,” ADB Country Director Manmohan Parkash said in the seminar.
BB Deputy Governor SM Moniruzzaman said the government was considering establishing an AMC.
“We have conducted a fusibility study in this regard and currently working on legal and other frameworks. But nothing has been finalized yet,” he said.
ADB Chief of Finance Sector Group Junkyu Lee said: “NPL is very much related to macro economy of a country. Not that NPL is destructing the entire economy but it is very important to have proper safeguard,” he said.
According to Korea’s government-owned AMC, Korea Asset Management Corporation (KAMCO), the key challenge for Bangladesh is implementation of financial restructuring, legal framework change and foster market participation to establish AMC model.
(DT)
