Higher GDP growth fails to result in lower NPL: BIBM
An increase in the gross domestic item (GDP) reduces non-performing loans on advanced economies, but it has very little such effect on the awful loans on Bangladesh, found a report of the Bangladesh Institute of Lender Management (BIBM).
The BIBM presented the report throughout a webinar titled "NPL in Banking institutions of Bangladesh: Macro Economic and Bank Specific Perspective" yesterday.
The growths of GDP and NPL are inversely proportional just because a strong, positive growth in real GDP usually results in more income, which boosts the debt servicing capacity of borrowers, thereby adding to lower the NPLs, says the report.
Interestingly, Bangladesh's GDP development rate has no impact on the NPLs of banking institutions, it said.
"This is as a result of the presence of a substantial amount of wilful defaulters," said Md Alamgir, a co-employee professor at the BIBM who presented the statement.
The number of the NPLs in the banking sector stood at Tk 96,116 crore towards the end of June 2020, which was 9.16 % of the quantity of loan disbursed.
Average lending price of banks comes with an immense impact on the NPLs, Alamgir said, adding that both regulators and bankers could assist debtors on Bangladesh by charging a lower interest and thereby raising their capacity to repay loans.
The BIBM analysis shows that loan growth rate comes with an inverse relationship with the NPLs.
The increase of the NPL both in quantity and percentage of the full total loans disbursed is linked to either financial crises or bank failures or both, and it negatively impacts private investment, said Alamgir.
The report recommends creating a data sharing system connecting the banks and Bangladesh Bank to ensure that lenders can perform a background check to recognize bad debtors.
"Then banks will only approve loans after checking the sound credibility of the borrower and this idea could be developed from cloud processing systems," Alamgir said.
Strong interior management and very good governance by banks can decrease the NPLs, said SM Moniruzzaman, a deputy governor of the Bangladesh Lender.
You will find a sense of satisfaction above Bangladesh not being in an exceedingly awful position among the countries of the South Asian Association for Regional Cooperation, but nonetheless, there will do scope for the betterment of the NPL level to a tolerable level, he said.
As banks hand out term loans from short-term deposit, they tend to fall into complications, that they need to improve their deposit basic, Moniruzzaman said.
Banks also have to assess borrowers properly to avert the NPLs whenever you can, the deputy governor added.
Banking institutions' strong monitoring and evaluation of borrowers are incredibly important to decrease the NPLs, said Md Akhtaruzzaman, director basic of the BIBM.
The lenders could make adverse selections in lending due to the presence of fake documentations, but with continued monitoring they are able to reduce the sum of money being siphoned off by the defaulters, he said.
Another big problem for the rise in the NPLs is delays in the judicial method for the sales of mortgages, he said, adding that whenever a bank initiates the process, defaulters tend to go to courts and get a stay order issued.
Md Ataur Rahman Prodhan, CEO and managing director of Sonali Lender, said a circumstance was filed in 1985 nonetheless it was yet to be settled. So, the lender nonetheless cannot materialise the mortgage and bring cash into its books.
In almost all of the cases, banks cannot sell mortgaged assets for the lengthy legislative functions, he said, adding that lots of good borrowers usually do not even have anything showing as mortgage and avail financing but their ideas and potential were immense.
"So, security or mortgage is not the perfect solution is for the NPLs," he said.
Many good borrowers wrap up getting finance excessively because of unethical competition between lenders, leading to them also becoming defaulters, he said.
Because of a lackluster efficiency of capital markets, banking institutions lend for longer conditions and it generates mismatch found in fund mobilisation. The Sonali Lender managing director suggest strengthening the administrative centre market.
Banks need to maintain homework in lending funds, said Syed Waseque Md Ali, managing director of First Security Islami Bank.
But it is probably not possible in cases where political pressure is involved and they are the types of loans that become the NPL generally, he said.
Monitoring is vital because a good mortgage loan can turn bad due to the lack of monitoring, he said, recommending that the central lender form a database in order that lenders may get traditional data about borrowers.
Ali also recommended acquiring ways to provide loans at lower interests as an incentive for good borrowers, reasoning that the interest rate for a good customer shouldn't be the same as that for bad buyers.
While giving out financing, it is very important to figure out the actual reason for the debtor availing it, said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.
However the banking sector lacks qualified manpower, which hinders proper assessment and monitoring, he said.
The central bank should screen the boards of directors of banks to see if indeed they have the banking knowledge to perform the establishments properly, he said.
Alternatively, banks need to start out offering more working capital but they are doing the opposite and giving out more term loans. Consequently, entrepreneurs sometimes face concerns in running their businesses due to too little working capital.
A high interest rate will not always cause an NPL, he said, citing the example of Brac Bank.
The MTB CEO sought permission to run their own audits on companies before providing loans, reasoning that there were so many credit history companies that their valuations weren't credible constantly.
Due to the spread of the Covid-19, businesses will be affected and the amount of the NPLs increase after the pandemic ends, the statement says.
Banks has to remain vigilant in order that the facility supplied by the central bank withholding classification of loans this season isn't misused, it added.
The report recommended stopping a borrower from having the ability to take loans from various banks, strengthening management efficiency and having bank agent monitor borrowers from within the latter's enterprise.
In addition, it recommended proper assessments, making sure effective corporate governance, and lowering unhealthy competition.
