Abstract
Nonperforming loan (NPL) is one of the most cataclysmic phenomena for the entire banking industry in Bangladesh. NPLs in the banking sector have experienced a monstrous escalation of 300% in the last decade and statistically this figure is more than 1000 billion of Bangladeshi Taka (BDT). Even though international standards of loan classification and provisioning system is being adopted, the management of NPL is found unproductive. Fundamentally, deficiency of good governance, weak supervision, corruption, political interference in approving loans, culture of impunity and professional ineptness of bankers to deal with the pressing issue have played an instrumental role for the swift upsurge of NPLs. Pertaining to preventive measures, prominence needs to be placed on credit screening, loan surveillance, stringent law enforcement, centralized loan authorization system, strong monetary policy and strong loan review functionaries. Therefore, this study has emphasized on the challenges of NPL, evocative ways for improving the debt recovery environment and cracking the NPL problems in order to safeguard a sustainable banking sector of the country. Keywords : non-performing loan, loan classifications, provisioning, good governance, sustainable banking DOI : 10.7176/EJBM/12-27-14 Publication date :September 30th 2020
Highlights
Bangladesh depends profoundly on the banking industry for smooth financial intermediation
A data warehouse for collaterals needs to be introduced to avert borrowers from taking loans from several banks by exploiting the same properties as collateral etc. It is high time steps were taken to ameliorate our financial sector governance for plummeting hazard of bad loans. It has been a long time since the adoption of prudential regulations in the banking system of Bangladesh
The banking system is still laden with a frightening amount of Nonperforming loan (NPL) and lags far behind the neighbouring countries like India and Pakistan
Summary
Bangladesh depends profoundly on the banking industry for smooth financial intermediation. A bank with a high ratio of NPLs vacillates from erosion of the capital if there is no provision Combination of these adverse impressions of NPLs destruct banks’ financial health such as low profitability and low capital base which are reflected in Bangladesh banking sector. Consistent with overdue criteria, bank managers typically split all loans into five classes such as: Continuous loan, Demand loan, Term loan payable within five years, Term loan payable in more than five years and Short-term agricultural credit or micro credit. They observe the dates for repayments which have expired. Micro-credit may be even non-farm credit, self-employment credit, loom-loan or any forms of credit under the own credit program of the banks
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