Dhaka, Bangladesh (BBN) - A load of rescheduled and restructured loans causes concern for the credit-risk management of country’s banking industry, according to the central bank of Bangladesh.
The stressed advances ratio rose to 16.1 per cent in the last calendar year (CY) 2015 from 13.1 per cent a year ago mainly due to higher percentages of rescheduled and restructured loans.
The stressed advances cover classified, rescheduled and restructured loans in the banking industry of Bangladesh.
“In the absence of an orderly recovery of classified loans, the banks would suffer from non-performing assets, lower profitability, and a deteriorating equity base,” says the Bangladesh Bank (BB) in its latest Financial Stability Report (FSR) 2015, released on Monday.
Besides, the FSR cautions, such a situation would increase the cost of capital, widen the mismatch between interest-earning assets and interest-bearing liabilities and upset the economic value additions (EVA) by the banks.
“The Central Database for Large Credit (CDLC) has already been developed to establish a healthy credit culture in the country through strengthening monitoring and supervision on large corporate loans,” Bangladesh Bank Governor Fazle Kabir said while unveiling the FSR 2015 at the central bank headquarters in Dhaka.
The central bank chief also asked the bankers to improve their internal controls and compliance for reducing non-performing loans (NLPs) that will help improving efficiency in the overall banking system.
Currently, the rescheduled loans constitute a significant portion of the banks' total loan portfolio.
In 2015, the rescheduled loans accounted for 4.5 per cent of banks’ total outstanding loans. It was also equivalent to 5.0 per cent of total unclassified loans and 28.0 per cent of total stressed advances, compared with 3.4, 3.8 and 25.9 per cent respectively in CY14, according to the report.
The total outstanding loans in the banking sector rose to BDT 5846.15 billion in 2015 from BDT 5178.37 billion a year before, the BB data showed.
From CY 14 to CY 15, the total amount of rescheduled loans went up by 50.1 per cent.
On the other hand, a total of BDT 164.1 billion worth of loans were restructured by the scheduled banks in the last calendar year in line with BB’s large loan restructuring policy.
These credits constituted 2.8 per cent of total loans outstanding, 3.1 per cent of total unclassified loans and 17.4 per cent of total stressed advances.
However, considerable stress in asset quality in the form of rescheduled and restructured loans remains a concern, according to SK Sur Chowdhury, deputy governor of the BB.
“We’ve already established a CDLC for early identification of vulnerabilities of large non-financial corporate bodies and examining remedies in case of their defaults,” Mr. Sur Chowdhury explained.
The CDLC framework considers both funded and non-funded exposures of banks and non-banking financial institutions (NBFIs) to a certain person, counterparty or group, including investments in bonds/debentures/commercial papers issued by those borrowers/obligors having an aggregate exposure of BDT 500 million and above.
The banks and NBFIs have already been asked to manage such loans which were reported to the CDCL by banks concerned and NBFIs through forming a Joint Lenders’ Forum (JLF).
Appreciating the initiative for the formation of JLF, Allah Malik Kazemi, change management adviser of the BB, said it’s a good initiative for managing such loans with coordinated joint efforts by the banks and NBFIs concerned.
The JLF is required to come up with a Corrective Action Plan (CAP) for accounts that are signalling a building up of stress and the banks and NBFIs with highest exposure would have to convene the forum, according to the report.
In 2015, though banks’ operating profit decreased, net profit increased significantly due to a reduced loan-loss provision expense, the BB said.
While private commercial banks performed comparatively better in terms of asset quality, capital adequacy and profitability, state-owned ones were lagging behind the industry average, creating a sort of stability concerns to the industry and thereby necessitating stringent and prudent supervision.
Among others, Anis A Khan, chairman of the Association of Bankers, Bangladesh (ABB), Mafizuddin Sarker, chairman of Bangladesh Leasing and Finance Companies Association (BLFCA), and General Manager of the Financial Stability Department of the BB Debashish Chakrabirty also spoke on the occasion.
BBN/SSR/AD