Rising NPLs in the manufacturing sector raise concerns: BB report
The report highlights that the gross NPL ratio of 9.13% within the manufacturing sector exceeds the industry average of 8.16%.
The manufacturing sector continues to grapple with a significant concentration of nonperforming loans (NPLs) compared to other sectors, according to a report by the Bangladesh Bank.
The report reveals that the NPL share in the manufacturing sector stands notably high at 55.10%, surpassing all other sectors. Additionally, this sector claims a substantial portion of the banking industry's loans, accounting for 49.27%, as indicated in the BB's Financial Stability Report 2022, released on Sunday.
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The report highlights that the gross NPL ratio of 9.13% within the manufacturing sector exceeds the industry average of 8.16%.
"As loans in the manufacturing sector occupied almost half of the banking sector's loans and advances, this sector seems to pose a pocket of risk for the banking sector," reads the report.
Furthermore, the ship-building and ship-breaking sub-sector exhibit a worrisome trend, with a high gross NPL ratio of 22.43% in 2022, up from 18.75% in the previous year.
BB's Financial Stability Report 2022 further states that the overall asset quality of the banking sector has experienced a slight deterioration. The report notes that the rise in gross NPLs, driven primarily by increased NPL ratios within state-owned commercial and specialized banks, has contributed to this marginal decline in asset quality.
The report says in 2022, the notable and elevated ratio of Bad/Loss loans to gross NPL continued its trend with a slight uptick compared to the previous year.
At the end of December 2022, the proportion of bad and loss (B/L) loans within the gross NPL category climbed to 88.67%, a marginal increase from 88.17% in 2021. This elevated B/L loan ratio underscores that a significant portion of the NPLs has remained nonperforming over an extended duration.
According to the central bank report, the cumulative bad and loss loan volume within the banking sector reached nearly Tk1.07 lakh crore by the end of December 2022, marking an increase from Tk91,058 crore a year ago.
Also, the proportion of bad and loss loans has been demonstrating an increasing trend since 2012 and remained above 80% of the gross NPL over the years, which may imply a slow recovery from bad loans, according to the report.
"Higher B/L loans may adversely affect the profitability and the capital base of the banks since 100% provision is required to be maintained against such loans," says the BB report. In 2022, all the banks except four private banks, three state-owned banks, and one state-owned specialised bank maintained loan-loss provisions as per the regulatory requirement of the Bangladesh Bank.
