Loan recovery takes a backseat

A recent survey conducted by the Bangladesh Institute of Bank Management (BIBM) titled "Credit Operations of Banks" has shed light on how banks are going about recovering the massive loans that have been defaulted upon. Although bank managements have been vocal of late that they are going all out to recover nonperforming loans (NPLs), the survey tells us that 93 percent of NPLs are being rescheduled, which is another way for banks to lower the buildup of their classified loans. This allows banks to show greater profits on their balance sheets but does little to address the problems associated with NPLs.

Reportedly, at the end of last year, the total amount of NPLs stood at Tk 93,911 crore and banks were not having much luck with legal proceedings. There are problems with Money Loan Courts which, as experience shows, take more than five years to dispose of a case. With such lengthy proceedings, the case backlog keeps getting longer. Not much attention has been paid to getting these courts to work properly with sufficient number of judges and the requisite support the courts need to function properly.

If there is to be any improvement in the financial governance of the banking sector, steps have to be taken to strengthen the role of courts because without that happening, NPLs will continue to rise as loan rescheduling by banks gives a green signal to future defaulters that it is fine to take depositors' money without worrying about repayment.