The central bank has moved to form an asset management company to deal with the growing non-performing loans (NPLs) of banks, as part of its efforts to perk up the ailing sector.
The development comes following recommendation from a six-member committee formed two months ago.
The committee came up with the recommendation after conducting an extensive analysis of seven Southeast Asian countries on how they had brought down their large amounts of NPLs after facing a major recession -- widely known as Asian financial crisis -- between 1997 and 1999.
Each of the seven countries -- Vietnam, South Korea, Indonesia, Malaysia, Thailand, Taiwan and the Philippines -- successfully brought down their classified loans by way of implementing this formula.
For instance, NPLs in Indonesia went up to nearly 50 percent of its outstanding loans during the financial crisis, but it came down to less than 3 percent in 2017, said a member of the committee.
“That is why we have come up with the idea. This will help the banking industry to keep the NPL at a tolerable level,” he added.
The company will purchase NPLs from banks and sell them off to individuals or corporate entities.
At the end of 2018, the total amount of NPLs in the banking sector stood at Tk 93,911 crore, which is 10.30 percent of total outstanding loans.
Many banks have been failing to maintain the requisite capital and provisioning against bad loans, which are eating up their profits.
The company would take the NPLs off the banks' hands in exchange for special bonds that would have certain maturity, thus enabling lenders to provision for the bad loans, according to a report prepared by the committee.
The committee also called for the creation of a secondary market for NPL, where people would be allowed to sell and purchase default loans.
A vibrant secondary bond market is essential to facilitate the asset management companies as it will help them float bonds to raise their equity. The companies will use the equity to purchase default loans.
The committee also suggested setting up a separate data warehouse for NPLs under the existing facilities of the Credit Information Bureau (CIB) of the central bank.
Tax rebate facility should be offered to those who will take part in the purchasing and selling process of the default loans.
The recommendations will be sent to the finance ministry shortly for its approval to form the asset management company.
Bangladesh Bank Executive Director Md Abdur Rahim and Joint Director Mohammad Ashfaqur Rahman prepared the report.