Bangladesh Bank Headquarters

Dhaka, Bangladesh (BBN) – The central bank of Bangladesh has emphasised improving financial intermediation efficiency by reducing the amount of classified loans in the banking system through better supervision and risk management.

“Managing macro-financial stability in the face of a sizeable but narrowing current account deficit and complex global environment, improving financial intermediation efficiency by reducing stressed asset in the banking system would require continued improvement in supervision and risk management,” the Bangladesh Bank (BB) said in its latest Bangladesh Bank Quarterly (BBQ) for July-September 2018.

The BB’s latest observations came against the backdrop of rising trend in the non-performing loans (NPLs) in the country’s banking system in the recent months.

The volume of default loans by nearly 34 per cent to BDT 993.70 billion as on September 30, from BDT 743.03 billion as on December 31, 2017, according to the central bank’s statistics.

Meanwhile, Syed Mahbubur Rahman, chairman of the Association of Bankers Bangladesh (ABB), has sought judicial support immediately to whittle down the amount of NPLs in the banking system.

The senior banker also suggested creating social pressures like impose restriction on air journey against loan defaulters’ particularly willful ones that will help reducing the volume of default loans.

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

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

“To support inclusive growth and macro-financial stability, the focus has been on ensuring that credit flows to the productive sector through risk extensive and intrusive supervision,” the BBQ noted.

Despite the level of stressed asset during the first quarter (Q1) of fiscal year (FY) 2018-19, liquidity conditions of the banking system remained stable, as credit growth recalibrated in line with deposit growth, it added.

The BBQ also said continued political calm, falling energy and food prices in the global market could likely provide some upside support to the growth and favorable support to the inflation outlook for FY 19.

However, the slower global growth in FY 19, continued trade tensions and tighter monetary conditions in the advanced and emerging market economies can create some headwinds for the economy, the central bank explained.

Regarding share market, the BB’s latest report said the capital market performance exhibited a mixed trend during the Q1 of FY19, as reflected in the price indices, market capitalisation, price earnings ratio, and turnover in the Dhaka Stock Exchange (DSE).

“Buyers’ confidence in the readymade garment (RMG) industry underpinned by improving workplace safety conditions and the strong US growth momentum aided exports,” the BB noted.

It also said improving energy supply and relative political calm also supported economic activities.