Outside influence barrier to combat NPL: Experts

Staff Correspondent

17th July, 2019 10:40:34 printer

Speakers at a roundtable on Wednesday urged the bankers to remain alert about outside influence while sanctioning loan terming it a barrier to fight against the non-performing loan (NPL).

They also urged the bankers to learn more about the nitty-gritty of credit guarantee which, they said, can help reduce the growing non-performing loan (NPL). 

They made the suggestion while unveiling a study report at a roundtable titled ‘Corporate Guarantee: Does It Work in Recovery of Loan’ at BIBM head office at Mirpur in the city.

The study report prepared by Bangladesh Institute of Bank Management (BIBM) discussed in detailed the various aspects of non-performing loan and the reasons behind the NPL.

According to the report, absence of strong guarantor is also a major factor behind the non-recovery of loan especially in case of non-repayment by the principal borrower.

Bangladesh Bank Deputy Governor SM Moniruzzaman was the chief guest while BIBM Director Prof IBM Director General Mohammad Nazimuddin chaired over the session.

Addressing the meeting, bankers underscored the need for increasing awareness about the corporate guarantee of bank loan as the non-performing loan has become a matter of concern.

In his address of welcome, BIBM Director Prof Prashanta Kumar Banerjee said corporate guarantee can play a vital role to reduce the huge amount of non-performing loans.

Among others, Dhaka University former Prof Barkat-e-Khuda and BIBM Supernumerary Prof Helal Ahmed Chowdhury spoke on the occasion.

The study recommended proper assessment by the bank before accepting the guarantee. Banks should accept the guarantee if it provided by a credible and solvent entity only. In absence of these, the guarantee will not be effective in recovery of loan in case of non-repayment by the principal borrower.

Deputy Governor Moniruzzaman said there is harsh reality that the growing trend of NPL in the banking industry in Bangladesh is a major concern for policymakers and the stakeholders.

“The NPL has adverse effect on the bank’s day to day operations and profitability. Banks have to keep adequate provision against default loan which directly affects the net profit,” he added.

With increasing NPLs the Risk-weighted Assets (RWA) would increase which, he said, in turn would create pressure on maintaining the capital adequacy.

The deputy governor also said, as part of the credit risk management practices, banks usually accept securities in different forms to mitigate the potential credit risk.

“Obtaining security for loans is one of the safeguards that banks exercise to secure their interests. Commercial banks consider both tangible and intangible securities in this respect,” he added. BIBM Director General Nazimuddin thinks the study will help explore the enforceability and effectiveness of corporate guarantee in recovery of loan in Bangladesh.