Published in New Age on Sunday, 7 September 2014.
IMF queries about nonperforming loan burden
Shakhawat Hossain
The International Monetary Fund has inquired about the high and rising levels of nonperforming loans given by state-owned banks and the heavy burden of a series of embezzlements clogging their balance sheets.
It also wants to know whether there was any outcome of the memorandums of understanding Bangladesh Bank signed with BASIC and the other state-owned banks.
Policy makers and the banks face the challenge to clean up the balance sheets through credible, reliable and transparent assessments followed up by timely remedial actions.
They also face questions relating to legal system capacity to process nonperforming assets.
The policy makers face a daunting task in addressing the burden of nonperforming loans that could keep the economy in the mire of low profitability, low credit and low growth, said officials.
Finance Ministry officials said that they were busy collecting information about nonperforming loans from the state-owned banks to meet the queries from IMF.
IMF wants the information to evaluate the burden of nonperforming loans on credit and the ailing banking sector, they said.
An IMF team is due to be in Dhaka from September 17-30 to review the extended credit facility deal with Bangladesh, they said.
Out of the one billion extended credit Bangladesh has already received about $750 million in five tranches.
The disbursement of the sixth and penultimate tranche would depend on the review by the visiting IMF mission.
The stock of nonperforming loans increased by a staggering Tk 10,761.62 crore in first six months of the current calendar year to Tk 51,344.63 crore from Tk 40,583.01 crore in December 2013.
Finance minister AMA Muhith has sought suggestions from economists and experts on how to check the rising levels of nonperforming loans.
‘I seek your advice on how to address the issue of nonperforming loans. We know loans are given when they should not be given,’ he said during the recent mid-term review of the 6th Five-Year Plan by the Planning Commission.
He was obviously referring to classified loans of four state-owned banks that increased by Tk 3,112.96 crore in the first six months of 2014.
The central bank does not feel comfortable about the non-performing loans, said Bangladesh Bank governor Atiur Rahman.
In last year alone non performing loans increased by two per cent, he said.
Centre for Policy Dialogue executive director Mustafizur Rahman told New Age that the country’s banking sector was in a crisis since a series of embezzlements occurred in the state owned banks.
He advised the government to appoint a commission to plug the loopholes that facilitate sanctioning fraud loans by errant board of directors appointed by the government on partisan considerations.
Hallmark Group swindled more than Tk 3,500 crore from a Sonali Bank branch, the single largest bank fraud case in Bangladesh history.
BASIC, another state-owned bank, sanctioned such loans worth over Tk 4,000 crore despite monitoring by BB.