Asset reconstruction companies necessary to address NPLs

Non-performing loans (NPLs) continue to be a major concern for our financial sector, necessitating strong action and close monitoring by both the primary regulator and the boards of banks, as well as dedicated senior management teams.

Setting up an asset reconstruction company is imperative, and the sooner steps are taken to establish it, the better it will be for improving the balance sheets and vital ratios of our banks and financial institutions.

According to data by the Bangladesh Bank, NPLs have increased by Tk70,000 crore since 2016, reaching Tk1.31 lakh crore in March 2023. Analysts suggest that considering rescheduled loans and court stay orders against loan defaults, the actual amount of NPLs would be much higher.

The governor of Bangladesh Bank and his team faced a challenging task in formulating the Monetary Policy Statement (MPS) for the next half-year, given the persistent macroeconomic pressures worldwide over the past three years, with some improvements.

I am delighted that for the first time in recent history, the MPS has been announced ahead of the upcoming period. I commend the governor and his team for their proactive efforts in delivering the MPS in good time to the nation, allowing us to better prepare and plan for the future.

This recent MPS is the first contractionary one in some time, aimed at reducing private sector credit. However, achieving the target of 11% should not be difficult, considering the growth rate fell to 11.28% in April 2023. The impact on private sector investment growth, industrialisation and services remains to be seen. Large business houses are facing challenges with foreign exchange borrowings due to the global increase in interest rates and the depreciation of the taka by over 13%.

The steps taken in the MPS to realise the pending export proceeds, which were anticipated to receive a higher exchange rate later, are welcomed. It is crucial to have them in our national accounts, thereby contributing to the reduction in the trade deficit.

The preparation of the statement encountered numerous challenges, and the process of gradually freeing interest rates has finally commenced, albeit in a controlled manner. Market operators need a thorough understanding of the monthly-based mechanism for determining interest rates, ensuring smooth administration.

Administering the foreign exchange rate is a significant challenge for an import-heavy nation with a trade deficit.

Remittances can be a solution if a larger portion can be channelled through official channels and hundi is reduced as much as possible. In this regard, banks and exchange houses play a vital role in encouraging the diaspora to remit money legally and highlighting the benefits for both individuals and the country.

Agreements with multilateral financing institutions for lines of credit have been signed, and the sooner they are implemented, the better it will be.

All these efforts are necessary to increase forex reserves, facilitating smoother and faster genuine imports while reducing the need for the government to borrow from the banking system. This, in turn, enhances liquidity and credit availability for the private sector.

The launch of the Commodity Exchange by the Chittagong Stock Exchange, which is currently underway, should help address price inequalities in commodities, including farm produce, within the country. Ensuring fair prices for farmers' produce and establishing a competitive processing and marketing structure will lead to affordable prices for consumers without sudden spikes and fluctuations.

The author is the former managing director of Mutual Trust Bank and former chairman of the Association of Bankers, Bangladesh (ABB).