The newly-appointed Finance Minister A H M Mustafa Kamal asked the bankers to go tough on reducing non-performing loans (NPL) as it is quite high compared to other countries. Needless to say, in recent times loan default, especially in the state-owned banks, has emerged as a topic of frequent discussions in the media. The issue is related with investment, economic growth, employment generation and poverty alleviation, which are inextricably connected with the financial soundness of the banking system. The banking system of Bangladesh is currently under tremendous stress because of unbridled increase of loan default.
As the causes of loan default, the following reasons can be cited: The incompetence of the bank personnel i.e. lack of professional knowledge, improper valuation of collateral, wrong assessment of cash flow, faulty documentation, lack of monitoring and follow-up; Indications of poor governance in the banking system; Political influence and backing for loan sanction; and ineffective judicial system of loan recovery.
The remedial measure of the above shortcomings are improvement of professional know-how of the bankers, establishment of corporate good governance, stoppage of political interference and backing, and quick disposal of lawsuits in the court. We believe the newly formed government will focus on these issues.