Bangladesh, the once “bottomless basket” has grown to be the new “Asian Tiger”, on account of incessant growth in the last decade. International investors are eyeing for Bangladesh as a promising investment destination due to immense growth opportunities. Also, the ongoing mega projects will change the blueprint of the country’s infrastructure, which is considered to be an obstacle in doing business.
However, the ever-piling up non-performing loans in the banking sector can make the situation worse.
Non-performing loans eats up the portion of loanable fund of a Financial Institutions by keeping provision, which was otherwise supposed to be channeled to the deficit sector i.e. the business entities or to productive sectors. As of November 2019, government already borrowed 90% of its annual limit from the banks, which will in turn, reduce banks’ portion of loanable fund. Further NPL pressure may aggravate the situation and lead to a liquidity crisis. Alongside, rising non-performing loans will have a direct hit on banks’ solvency scenario, for which banks may succumb to an unhealthy position in long run.
As NPL is constantly becoming a burning issue for the banking sector as well the economy, NPL management is need of this hour. Reinforcing good corporate governance is a prime activity for the sector. Instances of how companies become bankrupt in absence of good governance are aplenty worldwide. In India, merger between the strong banks and the weak banks (in terms of balance sheets) is evident recently as the problem of non-performing bank loans has emerged over the past few years. Our banking industry can also follow their suit, as combining portfolios can provide additional risk diversification. Lastly, establishing Asset Management Companies (AMC) which will purchase the toxic assets of the banks at a discount, and collect from the non-performing assets via selling securities over the years. Without taking care of ever-stacking NPL, the banking sector cannot contribute to the real economic growth. Hence, it is high time the top management of the FIs should come up with effective solutions.More Print Editions Subscribe