IMF LogoDhaka, Bangladesh (BBN)-The International Monetary Fund (IMF) has expressed concern over the rising trend in stressed assets in the banking sector that may hamper financial stability in Bangladesh.

The Washington-based lender recommended that the quality of assets should be improved immediately.
Stressed assets are defined as the sum of gross non-performing assets plus restructured and rescheduled standard advances, according to the central bank.

The visiting mission expressed such concerns at an introductory meeting, held at the Bangladesh Bank (BB) headquarters in Dhaka on Sunday with BB governor Fazle Kabir in the chair.

A five-member IMF Article IV Consultation Mission, led by Daisaku Kihara, Division Chief, South Asia 2 Division, Asia and Pacific Department, of the global monetary watchdog is now assessing the country’s overall macro-economic situation.

The IMF’s latest observations came against backdrop of rising trend in stressed assets ratio as a percentage of total loans and advances in the banking sector, which stood at BDT 9,114.30 billion as on December 31, 2019.

The stressed assets’ ratio climbed to 20.5 per cent in 2018 from 19 per cent from the previous year as the volume of non-performing assets and rescheduled advances went up, according to the BB’s latest Financial Stability Report (FSR).

“The stressed assets ratio rose to 20.5 percent at end-December 2018, which was the highest in the past three years,” the BB noted.

Within a year, gross non-performing loans (NPLs) ratio increased by 100 basis points, rescheduled standard advances ratio increased by 40 basis points and restructured advances ratio increased by 10 basis points, according to the report.

The rise in NPLs contributed mostly to the increase in stressed assets ratio in December 2018, it added.

“Accumulation of large volume of stressed assets affects profitability of the banks, raises the cost of capital, widens the possibility of asset-liability mismatch and hinders the financial intermediation process,” the BB noted.

Under this scenario, banks are expected to improve their efficiency and effectiveness in managing stressed assets, comply with the regulatory instructions and also strengthen recovery units for smooth collection of outstanding loans and advances.

The meeting also discussed the latest situation on both NPLs and loan rescheduling position, according to sources.
Besides, different macroeconomic issues, including foreign exchange reserves along with overall balance of payments (BoP) situation were discussed at the meeting, they added.

The mission is expected to meet finance minister A H M Mustafa Kamal and senior officials of the ministry of finance (MoF) and the central bank during the visit that will conclude on June 27.

Senior bankers, however, welcomed the IMF recommendation, saying that the banks will have to take effective measures to improve their assets quality immediately.

“There is no alternative to improving the assets quality in the banking sector,” Syed Mahbubur Rahman, Chairman of the Association of Bankers, Bangladesh (ABB), said while replying to a query.

Mr. Rahman, managing director (MD) and chief executive officer (CEO) of Dhaka Bank Limited, said the assets quality must be improved if we want to reduce our cost of fund.