Dhaka, Bangladesh (BBN)- The central bank of Bangladesh has asked 11 commercial banks and development financial institutions (DFIs) to inform details about the steps taken to reduce their non-performing loans (NPL) immediately.

The banks have been selected on the basis of the percentage of classified loans against their total outstanding position that is hovering between less than 10 per cent and over 44 per cent, officials said.

The Bangladesh Bank (BB), the country’s central bank, took the move against the backdrop of a rising trend of NPL in June this year despite strict monitoring and execution of tougher laws against delinquent borrowers.

Default loans increased by 12.08 per cent, or about BDT 26.95 billion, in the last one year to June 2008 due to poor loan recovery performance of some the commercial banks during the period.

The amount of NPL reached BDT 249.97 billion as on June 30, 2008. The amount was BDT 223.02 billion a year back, according to the central bank statistics.

“The central bank will fix the next strategy after receiving replies from the banks concerned in this connection,” a BB senior official told BBN in Dhaka.

During the last one year, the share of classified loans of the total outstanding loans of the country’s banking system declined by a mere 0.94 per cent, the BB’s data showed.

The share of the classified loans in the total outstanding loans was 13.02 per cent on June 30, 2008. The share was 13.96 per cent one year ago.

During the period, the total amount of default loans with the state-owned commercial banks (SCBs) climbed to BDT 152.89 billion against BDT 130.58 billion of total outstanding loans.

On the other hand, the total amount of classified loans with the private commercial banks (PCBs) rose to BDT 57.52 billion from BDT 51.50 billion during the period.

The classified loans of nine foreign banks (FBs) stood at BDT 2.30 billion against their total outstanding loans of BDT 152.60 billion in June, 2008.

The default loans with five DFIs stood at BDT 37.25 billion against the total outstanding of loans of BDT 142.13 billion.

The SCBs and DFIs continue to have very high NPLs mainly due to substantial loans provided by them on considerations other than commercial and under directed credit programs during the 70s and 80s.

“Poor appraisal and inadequate follow-up and supervision of the loans disbursed by the SCBs and DFIs in the past eventually resulted in massive booking of poor quality assets, which still continue to remain significant in the portfolios of these banks,” the central bank said in its latest annual report.

The report said recovery of NPLs, however, witnessed some signs of improvement, mainly because of the steps taken with regard to internal restructuring of these banks to strengthen their loan recovery mechanism and recovery drive and write-off measures initiated in the recent years.

BBN/SI/SS/AD-15September08-8:49 PM