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All efforts fail to reduce NPLs at state banks

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1 year ago

In the late nineties, the key financial indicators of the state-owned commercial banks deteriorated alarmingly. Non-performing loans (NPLs) rose to 45.6 per cent because of poor corporate governance.

This prompted the Bangladesh Bank to sign memoranda of understanding with the banks in 2003 to put them on the right track.

It inked a separate MoU with BASIC Bank in 2013 to closely monitor its activities after huge loan irregularities committed by Abdul Hye Bacchu, the then chairman of the bank, made the once sound lender into a problem one within 3-4 years.

The MoUs were revised in 2013 to make them time-befitting, incorporating many qualitative changes. Subsequently, the state banks drew up polices on credit risk management, internal control and compliance, loan review, and liquidity management.

The central bank sits with the managing directors of four state lenders – Sonali, Janata, Agrani and Rupali – every quarter.

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But all efforts in the last two decades have little effect on the actual condition of the banks.

NPLs in the state lenders stood at 21.6 per cent of their total outstanding loans of Tk 188,876 crore as of June, down from 31.23 per cent a year ago.

But this is not the actual picture as the lenders regularised defaulted loans to the tune of Tk 15,286 crore last year using the relaxed rescheduling facility introduced by the central bank.

The BB has been asking them to contain defaulted loans since signing the agreement nearly two decades ago, with no result in sight. In reality, the meeting has become a routine affair for the central bank.

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