Bangladesh Bank Governor Atiur Rahman yesterday asked banks to bring down default loans to a tolerable level as it still remained a headache to the central bank.
“Default loan in the banking sector is still a matter of concern. We need to exert our relentless effort in reducing the rate of the defaulted loan,” he said, calling the banks to become careful so that no fresh loan was turned default.
“Give loan to them who are good in payment but be careful about them who are already defaulter,” said the governor while unveiling Financial Stability Report 2014 at the Bangladesh Bank. Senior executives of Bangladesh Bank and chief executives of banks and non-bank financial institutions were present.
Sounding a cautious note, he said: “In no way irregularities will be tolerated.”
According to the report, non-performing loans (NPLs) have risen in recent years due to a combination of factors, such as, a deterioration in intrinsic asset quality and stringent problem loan identification. The NPL of the banking sector rose to 9.7% in 2014 from 8.9% a year ago.
On falling bank’s profitability, he said, though the net profit in the banking system had declined due to the provision requirements, the resilience of the system increased manifold. “As a regulator, Bangladesh Bank attaches equal importance on stability of financial sector along with its main goal.”
Atiur said capital base of banks has improved in last five years due to transferring of a major portion of banks’ profit into capital. “Re-capitalisation and decline in provision shortfall have strengthened the base of financial sector,” he said, pointing out that banks might face the challenges in adopting new business model in the coming years.
He said various advanced tools have been introduced in identifying risks and vulnerabilities in the banking sector, which will contribute to maintain stability in the financial sector.
The governor advised the banks and the financial institutions to be more transparent and alert in their operations to gain people’s confidence and trust.
“This is very important for developing a healthy banking and financial sectors. We should remember that the banks would be required to take the challenges of the fast changing business model besides the big challenges of achieving inclusive and sustainable economic growth.”
He also suggested the banks to take preparation for tackling the spillover impact of global economic volatility as the future banking would have more integration with the global financial activities.
“Banks and financial institutions in the country did not face any systematic risk even during the global recession because the external economic activities still remained limited and under careful management. But, there was no scope of self-satisfaction,” he said.
Giving lists of the central bank steps, including updated rules, regulations, technology and streamlining the monitoring system to establish discipline and ensure stability in the banking sector, the governor said: “As a result, the capital base of the banking sector increased and strengthened significantly in the past five years.”
He also highlighted the recent development initiatives taken by BB aiming at safeguarding financial stability outlining the purpose of the stability report. He pointed out that the banking sector had temporarily moved to safe liquid investments.
The governor stated that the financial system of Bangladesh was stable and shock resilient in calendar year 2014 on an overall basis. “Our financial sector was able to stand on strong base despite different obstacles and achieved 6.1% GDP growth on an average.”