A recent research of Bangladesh Institute of Bank Management (BIBM) has found that the number of non-performing loans (NPL) of small and medium-sized enterprises (SME) sector is witnessing a rising trend compared to the growth of banks credit disbursement.
BIBM Assistant Professor Md Masudul Haque presented the research report titled “Impact of SME Financing on Banks Profitability: An Inquiry across Banks in Bangladesh” during a seminar held at BIBM auditorium on Sunday.
According to the study, a total of Tk1,36,176 crore credit was disbursed to the SME sector in 2016 while the amount of default loan stood at Tk22,494cr.
The year-on-year credit growth in 2016 was 22% when the growth of NPL was 16.52%.
The study also showed the amount of NPL in SME sector was Tk2,644cr in 2010, which stood at Tk11,061cr in 2014 and the amount of default loan in 2015 was Tk18,342cr.
Md Masudul Haque told the Dhaka Tribune: “The number of defaulters in SME sector has been increasing for weak supervision process of the banks, inflation in raw materials of SME sector, increasing the cost of production and for using old technology which reduced the market competitiveness of the product.”
BIBM Chair Professor, also former deputy governor of Bangladesh Bank (BB), Khondkar Ibrahim Khaled was present at the seminar.
He said: “The number of NPL in SME sector is rising alarmingly, which proves the bankers are now unable to recover the SME loans as they had already failed in recovering big loans.”
SK Sur Chowdhury, deputy governor of BB, attended the programme as chief guest. He said: “Financing the SME sector does not have any impact on the profit of banks. The banks will have to finance more to the sector after assessing the repatriation capacity of the entrepreneurs, as the small entrepreneurs are supposed to be big ones in future.”
He also suggested the banks launch new products like Factoring during the collateral-free loan disbursement to SMEs.
Another research paper titled, “Impact of Social Safety Net Programmes on the Performance of State-owned Banks (SoBs)” was also presented by BIBM Associate Professor Mohiuddin Siddique at the programme.
He told the Dhaka Tribune: “We have visualised a qualitative scenario of the SoBs expenditures on Social Safety Net Programmes, where we found the bankers’ assessment about ‘losing profitability by spending on the programme’ is wrong.”
He urged the government to subsidise the banks with the amount they spend to provide free services under the programme.