The rising non-performing loans (NPLs) and excess liquidity have reportedly become major areas of concern for the country's banking sector. Besides, the number of large loans is also on the rise while the amount of credit received by small and medium enterprises has declined.
The NPLs in the banking system, according to reports, stood at 10.10 per cent of the aggregate amount of loans until June 2016 compared to 8.8 per cent as of June 2015. Both NPLs and excess liquidity are causing growing concern for the banking sector in spite of the fact that the central bank had already took some steps to minimise the risks of banks.
Meantime, the banks' classified loans to the country's industrial sector swelled by over 24 per cent. It stands at Tk 245.63 billion in the first half (H1) of the current fiscal, compared to that of the corresponding period of the previous fiscal, according to an FE report this week.
In spite of the close monitoring by the central bank, such types of dud loans are rising. Higher NPLs with the state-owned commercial banks (SoCBs) have pushed up the overall classified loans in the financial sector during the period under review. During the period, the total amount of NPLs with the SoCBs soared more than 41 per cent to Tk 86.51 billion from Tk 61.17 billion.
However, the total amount of classified loans with the private commercial banks (PCBs) has increased by nearly 34 per cent to Tk 89.12 billion from Tk 66.61 billion in the H1 of the FY16. The volume of NPLs with the foreign commercial banks (FCBs) dropped by 10.21 per cent to Tk 6.37 billion in the first six months of this year.
The classified loans with specialised banks also fell by 1.44 per cent to Tk 43.02 billion in the July-December period from Tk 43.65 billion six months before. On the other hand, the volume of NPLs with non-banking financial institutions (NBFIs) increased by 8.81 per cent to Tk 20.61 billion in the H1 of the FY17 from Tk 18.94 billion.
Meanwhile, disbursement of the overall industrial credits, covering working capital and term loans, increased by 16.59 per cent to Tk 1446.07 billion during the July-December period of the FY'17 from Tk 1240.26 billion in the matching period. The estimate includes disbursement of fresh credits, the rescheduling of term loans and fund release for balancing, modernisation, rehabilitation and expansion (BMRE) of industrial units. Analysts say higher capital-machinery imports pushed up the disbursement of overall industrial loans during the period under review. The import of capital machinery or industrial equipment used for production jumped by 58.55 per cent to $3.51 billion during this July-February period against $2.21billion of the same period of last fiscal.
The existing upward trend in import of capital machinery may continue in the coming months for implementation of different ongoing infrastructure-development projects across the country.
There are apprehensions that the upward trend in the disbursement of industrial loans might continue in the coming months as the central bank is encouraging the banks and NBFIs to expedite their credit flow to the productive sectors. The recovery of the industrial loans has increased by nearly 42 per cent.
A recent study has found that banking sector in Bangladesh has still a significant flaw in loan recovery procedures as the ratio of NPL is much higher than the international average. It said the 'bad' category of classified loans, which is not recoverable, constitutes about 70 per cent of the total NPL.
Too much dependence on court for recovering loans is one of the reasons behind the remarkable rise in NPL as court procedures are usually lengthy, expensive and cumbersome.
Analysts say more than 80 per cent cases related to NPL could be settled out of court. The introduction of a stringent loan classification system is the main reason behind the increase in NPL. Since recovery of default loans is a time-consuming process, the option of alternative dispute resolution (ADR) can help address the problem.