File photo:

Dhaka, Bangladesh (BBN) – The central bank of Bangladesh as well as the ministry of finance is now working to reduce the volume of non-performing loans (NPLs).

As part of the moves, at least three acts and a regulation are set to be amended considering latest banking businesses that will also help ensuring establishment good governance in the country’s banking sector.

The acts are Banking Companies, Bankruptcy and Negotiable Instrument while Merger and Acquisition (M&A) regulation is also set to be amended.

Besides, the government is actively considering formation of a public asset management company (PAMC) on the same ground.

Asian Development Bank has expressed its willingness to provide financial support to the government to form the PAMC) with a view to arresting the upward trend of classified loans.

Asset management companies (AMCs) played a critical role in bringing down NPLs in different countries, especially the nations that faced the Asian financial crisis between 1997 and 1999.

The government’s latest moves came against the backdrop of rising trend of NPLs in the banking sector despite close monitoring by the Bangladesh Bank (BB).

The amount of classified loans jumped by nearly 20 per cent or BDT185.14 billion to BDT 1,124.25 billion as on June 30 this calendar year from BDT 939.11 billion six months ago.

Junkyu Lee, chief of the financial sector at the ADB, said an increase in NPLs leads to a reduction in credit supply and a rise in unemployment and slowdown in overall economic activity.

“NPL shocks from one country can cross into other countries through micro financial linkage,” he said while presenting a keynote paper on NPL resolution mechanisms in Dhaka on Tuesday.

At the same programme, Arijit Chowdhury, additional secretary to the financial institutions division, said the government is working on various legal reforms to tackle defaulted loans.

He also hinted at visible results within the next two to three months.