Public asset management company underway to help tackle rising non-performing loans

The government is working on formulating a legal structure to form a public asset management company, which will take over non-performing loans (NPL) from banks and benefit itself through restructuring the discounted assets.

A joint committee comprising officials of the Bangladesh Bank and the finance ministry is working to pave the way for creation of a public asset management company.

The Asian Development Bank (ADB) is assisting the government in this regard, on Tuesday said the central bank and ministry officials while addressing a seminar titled "Resolving Nonperforming Loans Puzzle: Learning from International Experiences".

Like other parts of the world, many Asian countries, including China, South Korea, Vietnam, Indonesia, Malaysia, Thailand and Philippines, have successfully brought down classified loans in their banking sectors with the help of such special asset management entities, said ADB officials.

The two-day seminar at the capital's Le Meridien Hotel has been mainly sharing the public asset management company experiences of other Asian countries with Bangladeshi officials and financial sector professionals.

Bangladesh Bank's June 2019 data reveal that total non-performing loans in Bangladesh already crossed Tk1,12,000 crore, which is 11.69 percent of the total loans by banks. Less than a decade ago, the non-performing loans percentage was below seven percent.

It is better to address financial sector problems when the economy is running good and Bangladesh needs its banking sector to tackle rising non-performing loans, opined ADB officials.

When the economy is doing good, problems in financial sector may not be too apparent but it arrives as an additional shock when macro-economic situation is weakened, said Dr Junkyu Lee, the ADB Chief of Finance Sector Group.  

"It is up to countries how they will solve problems in their financial sectors. We are just sharing experiences of other countries and ready to assist Bangladesh if needed," said Manmohan Parkash, the Country Director of the ADB.  

Bangladesh is one of the fastest growing economies nowadays with its around eight percent gross domestic product growth. But in recent months, faltering export growth has been raising concerns in some experts amid businessmen's worries about export competitiveness.

How public asset management companies work

Swallowing all the bad assets in the banking sector, a public asset management company can help banks clean their books.

Taking over the assets, usually at a discounted price, the specialised entities with their expertise restructures the loans or take over the collateral and finally sell those at an increased price. They enjoy a profit against the added value to the assets once had gone bad.