Wednesday | 15 January 2025 | Reg No- 06
বাংলা
   
Wednesday | 15 January 2025 | Epaper

Now they are realizing

Published : Thursday, 7 September, 2017 at 12:00 AM  Count : 347
Haradhan Ganguly
Now banking sector seems to come to realization. To cut ballooning of non-performing loans (NPLs ) at a rational state, they need their own strategies, banks are thinking likewise. It's a positive ovation so far as ongoing running down scenario is concerned.
Thanks to concerned level, the latest observations came at a time when the swelling of NPL is becoming a major issue for the country's banking industry and also triggering concerns and criticism. Bangladesh Bank sources said that the volume of NPLs had jumped by more than 21 per cent to TK 621.72 billion by the end of 2016, rising from TK 513.71 billion a year ago.
So urgency is felt that banks ought to develop their own strategies for time-bound reductions in NPLs, as the ballooning of the same are affecting the country's entire financial sector. But we are not sure about how much it would bring success, notwithstanding we accustomed to say a half full glass of milk. Since the thing is more political biased and power biased rather than technicalities though it gets weighted upon.
Such strategies would include time-bound quantitative targets supported by a corresponding and comprehensive operational plan. These are to be replicated annually to stall a recurrence of the problem. It would also lay out the bank's approach and objectives regarding the effective management and ultimate reduction in NPL stocks in a clear, credible and feasible manner for each relevant portfolio.
Experts however usually identify internal and external credit culture, national and international market changes and bank performance as the major causes of NPL ballooning. It is heard, currently a number of banks in the country usually submit a five-year strategy to Bangladesh Bank (BB) which often includes topics on NPL.

*** Defaulting bank loan is socially prestigious in our country. Defaulting means big businesses, big- guns. Laxity of rules and culture of impunity makes it so. If wilful defaulting is treated as criminal offence, then snapshot would have been different. Since such bank money looting in the name of default is people's money. ***

The first step in developing such strategy, they thing, should be a thorough and realistic self-assessment to determine the severity of the situation and the steps that need to be taken internally to address it.
In doing so, banks should fully understand and examine the scale and drivers of the NPL issue as well as the outcomes of NPL actions taken in the past. Operational capacities for the required steps such as process, tools, data quality, IT or automation, expertise, decision making and internal policies are to be considered.
When it comes to operational capacity that bank needs to highlight issues like early warning  and detection of NPLs, forbearance, provisioning , collateral valuations, management of foreclosed assets as well as monitoring and reporting.
Understanding the present and future external operating conditions is also critical to the formation of an NPL strategy and associated reduction targets. A sensible framework for assessing this aspect should include macroeconomic conditions, market expectations, any NPL investor demand, NPL servicing, regulatory, legal and judicial framework and tax implications.
Banks should be able to model the capital implications of different elements in their NPL strategy under different economic scenarios. These implications should also be considered in conjunction with the Risk Appetite Framework as well as the Internal Capital Adequacy Assessment Process (ICAAP). Experts also emphasized the increased role of the Chief Risk Officers in the decision making process for tackling the rising NPL burden.  

*** They also need to explore which options are advantageous for different portfolios or segments under different conditions. NPL strategy needs to be there at every level of processes within an organization, including strategic, tactical and operational levels. ***

Given the critical role of the CROs in the risk-management process of the banks, they should have an important voice in the decision making process of tackling NPLs. Instead of focusing solely on what the government and the regulator should do, banks need to highlight what they themselves can do within their organizational and operational modes for addressing the NPL issue.
Experts are of the view that a range of NPL strategy implication options are available, which include hold of forbearance strategy, active portfolio reductions, change of exposure type and legal options. Banks need to ensure that their NPL strategy includes a combination of these strategies or options to best achieve their objectives over a short, medium and long term.
They also need to explore which options are advantageous for different portfolios or segments under different conditions.NPL strategy needs to be there at every level of processes within an organization, including strategic, tactical and operational levels.
It is to be noted, such views came at the latest Chief Risk Officers' forum held at the Bangladesh Institute of Bank Management (BIBM) in the capital in the wake of growing concern over the issue of NPL.
The very implementation of these views depends on rather some conditional ties. The first and foremost political commitment is a major prerequisite for addressing the problem of soaring NPL. The prevailing situation tells, large portion of NPL soaring is trapped in cages of cases who are politically so much empowered by their stay near to power structure irrespective of their party affiliations.
Here only excellences of the Chief Risk Officers and their technically structural framing are not sufficient to bring fruitful changes in NPL culture. Here need banks' own autonomy first before taking any organizational initiatives to cut NPL ballooning. Entire banks' functioning particularly state owned banks have been entangled in bureaucracy. Banking and financial sector department of finance ministry is looking after them.
Their overt and covert order is impacting loan giving decisions. Concerned bureaucrats are giving order being influenced otherwise. This is one side of the picture. In other side, we see unholy alliances among bureaucrats, a section of corrupt concerned bank officials and concerned businesses.
This tri nexus exert their influences in determining loan sanctioning. This is not unknown, this nexus has attributed a lot to NPL ballooning. Therefore, this must be addressed properly first to mitigate the crisis emanating from NPL which now brings existential question for state banks.
Defaulting bank loan is socially prestigious in our country. Defaulting means big businesses, big- guns. Laxity of rules and culture of impunity makes it so. If wilful defaulting is treated as criminal offence, then snapshot would have been different. Since such bank money looting in the name of default is people's money.
So it is a criminal offence just like snatching money from people's pockets. Rather we see banks are being helped to make up their capital deficits by budgetary provision. It has been happening off and on from a long past. Yet we are congratulating the Risk Officers' forum for their new thoughts with new efforts.

Writer is a freelance contributor





LATEST NEWS
MOST READ
Also read
God's oppressed children
Listening to Joy - the civilized trailblazer
Why has Latin America turned away from the left?
Safeguarding banking services growth in Bangladesh
Time for an inclusive quality education
Erdogan subjected Turkey to a year of cynical doublespeak
A tale of two valleys
The economists who stole Christmas
Editor : Iqbal Sobhan Chowdhury
Published by the Editor on behalf of the Observer Ltd. from Globe Printers, 24/A, New Eskaton Road, Ramna, Dhaka.
Editorial, News and Commercial Offices : Aziz Bhaban (2nd floor), 93, Motijheel C/A, Dhaka-1000.
Phone: PABX- 41053001-06; Online: 41053014; Advertisement: 41053012.
E-mail: district@dailyobserverbd.com, news©dailyobserverbd.com, advertisement©dailyobserverbd.com, For Online Edition: mailobserverbd©gmail.com
🔝
close