Can we just accept that the Bangladeshi banking system is borked? Borked having the meaning of very badly damaged but still repairable -- but only if everyone agrees that it's that badly damaged.
Once we accept that then we can answer the question asked in this newspaper: “Who benefits from ballooning NPLs?” The answer being that we do, we taxpayers do.
An NPL is a non-performing loan. Someone borrowed the money and isn't paying it back. Some of this will be just people being a bit late, some will be people who lost the money because the business didn't work out and, sadly, some of it will be people who were able to borrow under the previous regime and never had any intention of ever paying back a politically-granted loan. Our problem is really that there's an awful lot of that last thing that happened.
It's a big problem too. “Total disbursed loans of the banking sector as of last September were Tk1,803,840 crore, of which 35.73%, or about Tk650,000 crore, are now defaulted.”
That is, to use technical terms, a lot.
Now, the actual question being asked is not who benefits from this large number, rather, who benefits from pushing up this number?
In the sense of insisting that loans that are just a little bit late, or paying their interest but not the capital sum back, get included as being non-performing.
The answer is us, we taxpayers again.
Two reasons for this.
Firstly, we want it to be made obvious how bad it was that people were gaining those political loans. So that, of course, this never happens again.
Because the only way we're going to get that banking system to recover from having lost that much money is if we, we taxpayers, put money into the banks to cover the losses. Sorry, but this is true.
We might hope that there's some miracle about to occur, some collection of rich people who will buy the banks maybe and then make everything right. Nope, it's not going to happen.
Second is that if we only half solve this problem then it will be worse than not solving it at all. Because a half solution will be a drag on the economy for years, decades even.
It's vital that the economy has a vibrant, well capitalized, banking system. This is something Bangladesh doesn't have at the moment -- because of all those non-performing loans and the losses the banks face as a result.
There is a need to recapitalize the banks. Sorry, we just do. We require well-capitalized banks as a vital part of the economy. Who took the money, who isn't paying back their loans, that's important, of course it is.
We should chase them, take their money off them too. But we need the banks repaired before all the time it will take to do that. So, got to be us, our taxes, that sort out the banks.
The reason is that under-capitalized banks will not and cannot make new loans. That then slows down economic growth and cripples new economic growth. Economic growth is the very thing needed in order to be able to continue to reduce poverty in Bangladesh.
So, if there's a problem there, then we need that problem to be fully described. In financial market slang we call it “kitchen-sinking” from the English expression to throw everything at it including the kitchen sink.
It is vastly better, when a banking system has been gutted, to over compensate, to do too much rather than not enough -- to throw that kitchen sink at that problem.
Once we've solved the problem then we can perhaps relax the rules, collect back some of that money. But do too much now then reconsider. Don't try to minimize the problem at the outset.
Over emphasizing, even exaggerating, the NPL problem means that the political pressure to do what must be done -- recapitalize the banking system -- will be greater.
As that's what must be done, recapitalize the system, then that over emphasizing is a good thing.
Yes, of course we should chase those who took the money. We will, too. But sort out the banking system first.