Bangladesh Bank Headquarters

Dhaka, Bangladesh (BBN)-The central bank of Bangladesh has asked all the scheduled banks for taking effective measures to reduce the volume of classified loans significantly by the end of 2018.

The bankers, however, have sought judicial support to this end.

The instruction was given at a meeting of bankers held at the Bangladesh Bank (BB) headquarters in Dhaka on Wednesday with BB Governor Fazle Kabir in the chair.

A tripartite meeting of Law Commission, the BB and senior bankers is expected to be held soon to gear up settlement of such loan disputes, according to sources.

As of June 2018, more than 55,500 cases involving BDT 750 billion in default loans are pending with the courts, according to the central bank’s statistics.

The BB’s latest move came against the backdrop of a rising trend in the non-performing loans (NPLs) in the country’s banking sector in recent months despite its close monitoring.

The volume of defaults jumped by nearly 34 per cent or BDT 250.67 billion to BDT 993.70 billion as of September 30, from BDT 743.03 billion as of December 31, 2017, the BB data showed.

The share of classified loans also rose to 11.45 per cent of the total outstanding credits during the period under review from 9.31 per cent nine months before.

The loans include substandard, doubtful and bad/loss of total outstanding credits, which stood at BDT 8,680.07 billion as of September 30, 2018, from BDT 7,981.96 billion as of December 31, 2017.

“We’ve asked the banks for taking measures to bring down the volume of percentage of classified loans to around 10 per cent of total outstanding loans by the end of this year,” a BB senior official told reporters after the meeting.

He also said the central bank may invite the chairman of Law Commission to attend the next bankers’ meeting to inform the legal complexity for settling classified loan disputes.

The BB and the commission already sat months ago to discuss issues like the functioning of money loan courts, strengthening recovery of NPLs and Credit Information Bureau-related matters.

“We’ve sought judicial support to reduce the volume of NPLs,” Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh, told reporters after the meeting.

He said the banks need the legal support to bring the defaulters, particularly the wilful ones, to the negotiating table to recover the NPLs.

At the meeting, the bankers have also been asked to take necessary measures to meet the overall shortfall in provisioning against their loans immediately.

The meeting also discussed issues like latest situation on both national and global economics, use of electronic fund transfer and trend in foreign exchange market.