Thesis Presentation: A Study on Non-Performing Loan: From the Perspective of the Banking Industry in Bangladesh.

1. Mohi uddin
A Study on Non-Performing Loan:
From the Perspective of the Banking
Industry in Bangladesh

2. OBJECTIVE OF THE STUDY
1. To assess the present
situation of non-performing
loans in our banking sector
2. To show the scenarios
of the “loan default
problem’’ in Bangladesh
3. To find out the effect of
NPL on bank’s profitability
and Financial Stability
4. To identify the causes and
remedies of non-performing
loans
5. To show a comparative
analysis of NLP in south
Asian Countries
6. To raise some issues and
observations which need to be
looked upon quickly for ensuring a
financially sound banking sector

3. Methodology of Study
To perform the objective of report I have
collected secondary data from published
sources. The secondary sources of data
and information are:
Sources of Data and
Data Collection
Research works of individuals
Different publications
Journal of different institutions
Bangladesh Bank Credit Risk Grading manual
Bangladesh Bank annual report

4. Limitations of the study
The limitations of the study are
Lack of previous experience.
This study did
not cover
primary and
unpublished
data
Time constraint.

5. Overvi
ew of
NPL

6. Non-Performing loan is a loan which the
borrower has missed to pay its scheduled
interest payment or payment of the
principle amount, generally for at least 90
days
Non-Performing
Loan (NPL)
No mention of any other terms or of day
limits from the first missed payment date
about the loan being non-performing
If mentioned in loan contract, the loan will
become non-performing according to the
contract agreement
Therefore, a loan will become nonperforming if-
The borrower missed the scheduled payment
and at least 90 days has past from the missed
scheduled payment.

7. Classifications of
LoansThese 2 groups total includes 5 different types of
loans, which are
• Standard Loan (STD)
• Special Mention
Account (SMA)
Unclassified Loans:
• Sub-standard (SS)
• Doubtful (DF)
• Bad/Loss (B/L)
Classified Loans:

8. Provisions against NPL
General Provision
Specific Provision
There are 2 types of loan loss provisions-

9. Rate of General Provision
Unclassified Loans to Brokerage House,
Merchant Banks, Stock dealers
2%
Outstanding amount of loans kept in
the Special Mention Account(SMA)
5%
Off-balance sheet exposures
1%
All unclassified SME loans
0.25%
All unclassified loans
1%
Unclassified consumer financing
5%
Unclassified Housing Finance and
Professional Loans
2%

10. Rate of Specific Provisions
01. 20% Sub-standard
02. 50% Doubtful
03. 100% Bad/Loss
04. 5%
All credits except Bad/Loss for
Agricultural and Micro Credit
05. 100%
For Bad/Loss in Agricultural and
Micro Credit

11. WRITE OFF
For all write off
loans there should
be 100% provision
kept before the
loan has been
omitted and
placed in off-
balance sheet
items.
The oldest bad debts
get the priority to list
as write off.
If the bad debt
recovers, the full
amount goes to
income as 100%
provision has
already been
secured for the
loan amount.
A manual register
should be
maintained to
follow up the write
off loans and to
calculate interest
on the loan
amount.
Omitting the bad debts from the balance sheet with 100% provision

12. Symptoms of NPL
Misses his/her first scheduled
payment
Warning Signs from Borrowers
If the borrower is a company then the bank
collects information from the competitors
Warning Signs from Third Parties
Every bank collects a CIB report of their
clients who interest to take loan.
Warning Sign from Other Banks

13. Causes & Effects of NPL
Borrower
Selection
Willful
Default by the
Borrower
Political
Influences
Poor
Management
Quality of
Borrowers
Lack of
Monitoring
Failure of
Business of
the Borrower
Corruption
Unskilled
Personnel
Adverse
Economic
Conditions
Recapitalizati
on Facility
Repetition of
Rescheduling
Lengthy
Recovery
Procedure
Improper
Documentation
Lack of
Applicability of
Regulation
Delay in Assessing
and Distributing
Loans
Lack of Proper
Action Taken against
Defaulters

14. Adverse effects of Non-Performing Loan in
Bangladesh
Reduce Capacity
to Provide New
Loans
Shrinking Profits
Deteriorate
Economic
Growth
Decreases
Reinvestment of
Fund
Decreases
Reinvestment of
Fund
Disruption in
Money Cycle
Decreases
Employment
Opportunity
Increase the
Cost of Banks
Reduce the
Capital
Adequacy Ratio

15. Monitoring of
NPL
Banks maintain verbal communications with
their borrowers through phone calls……
Verbal communication
If the loan has already being
listed as non-performing loan,
bank sends formal……
Formal Letter
Bank sends officers to visit that person/ business
place to know why they are not repaying the loans
or the situation of the business……
Physical Visit

16. Banking Sector Performance
SCBS DFIS PCBS FCBS Total
2010 Number of banks 4 4 30 9 47
Number of branches 3447 1382 2828 72 7729
Total assets 1384.3(28.5%) 295.4(6.1%) 2854.6(58.8%) 320.8(6.6%) 4855.1
Deposits 1044.9 183.4 2266.5 227.1 3721.9
2011 Number of banks 4 4 30 9 47
Number of branches 3437 1406 3055 63 7961
Total assets 1629.2(27.8%) 328.8(5.6%) 3524.2(60.0%) 385.4(6.6%) 5867.6
Deposits 1235.6 214.4 2787.5 272.2 4509.7
2012 Number of banks 4 4 30 9 47
Number of branches 3478 1440 3339 65 8322
Total assets 1831.9(26.1%) 385.5(5.5%) 4371.5(62.2%) 441.8(6.3%) 7030.7
Deposits 1377.9 260.4 3430.7 327.0 5396.0
2013 Number of banks 4 4 39 9 56
Number of branches 3520 1494 3602 69 8685
Total assets 2108.5(26.4%) 454.8(5.7%) 4948.2(61.9%) 488.7(6.1%) 8000.2

17. Banking Sector Performance
SCBS DFIS PCBS FCBS Total
2014 Number of banks 4 4 39 9 56
Number of branches 3553 1500 3917 70 9040
Total assets 2517.1(27.5%) 333.8(3.7%) 5787.1(63.3%) 505.0(5.5%) 9143.0
Deposits 1952.1 237.6 4449.4 326.0 6965.1
2015 Number of banks 4 4 39 9 56
Number of branches 3690 1406 4226 75 9397
Total assets 2839.6(27.5%) 291.3(2.8%) 6652.9(64.5%) 530.8(5.2) 10314.6
Deposits 2254.8 226.6 5110.4 336.8 7928.6
2016 Number of banks 6 2 40 9 57
Number of branches 3710 1407 4467 70 9654
Total assets 3209.5(27.6%) 299.5(2.6%) 7560.0(65%) 557.6(4.8%) 11626.6
Deposits 2535.4 249.4 5788.0 361.1 8933.9
2017 Number of banks 6 2 40 9 57
Number of branches 3721 1407 4758 69 9955
Total assets 3379.5 (25.88%) 317.6(2.43%) 8758.3(67.07%) 603.9(4.62%) 13059.3
Deposits 2700.6 273.3 6508.2 392.8 9874.9

18. Capital Adequacy
8.9
11.7
8.1
10.8
8.3
6.4 5.9 5
2
-7.3
-4.5
-7.8
-9.7
-17.3
-32
-33.7
-35.5
-31.9
10.1 11.5 11.4 12.6 12.5 12.4 12.4 12.5 12.2
15.6
21 20.6 20.2
22.6
25.6 25.4 24.9
23
9.3
11.4 10.5 11.5 11.3 10.8 10.8 10.83 10
-40
-30
-20
-10
0
10
20
30
Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18
SCBs 8.9 11.7 8.1 10.8 8.3 6.4 5.9 5 2
DFIs -7.3 -4.5 -7.8 -9.7 -17.3 -32 -33.7 -35.5 -31.9
PCBs 10.1 11.5 11.4 12.6 12.5 12.4 12.4 12.5 12.2
FCBs 15.6 21 20.6 20.2 22.6 25.6 25.4 24.9 23
Total 9.3 11.4 10.5 11.5 11.3 10.8 10.8 10.83 10
CRAR
SCBs DFIs PCBs FCBs Total

19. Overall NPL
Scenario of
Bangladesh

20. Gross NPLs to Total Loans by Type of Banks
15
12.6
23.34 23.6
29.6
25.6
30.54 32.2 33.35
24.2 24.6
26.8 26.8
32.81
23.2
26
23.4 21.7
3.2 2.9 4.6 4.5 4.98 4.9 4.6 4.9 6
3 3 3.5 5.5 7.3 7.8
9.6
7 6.7
0
5
10
15
20
25
30
35
40
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18
SCBs 15 12.6 23.34 23.6 29.6 25.6 30.54 32.2 33.35
DFIs 24.2 24.6 26.8 26.8 32.81 23.2 26 23.4 21.7
PCBs 3.2 2.9 4.6 4.5 4.98 4.9 4.6 4.9 6
FCBs 3 3 3.5 5.5 7.3 7.8 9.6 7 6.7
Total 7.3 6.1 10 8.9 9.7 8.8 9.2 9.3 10.4
SCBs DFIs PCBs FCBs Total

21. Ratio of Net NPL to Total Loans by Type of
Banks
2010 2011 2012 2013 2014 2015 2016 2017 2018
SCBs 1.9 -0.3 12.8 1.7 6.1 9.2 11.1 11.2 11.7
DFIs 16 17 20.4 19.7 25.5 6.9 10.5 9.7 7.4
PCBs 0 0.2 0.9 0.6 0.8 0.6 0.1 0.2 0.8
FCBs -1.7 -1.8 -0.9 -0.4 -0.9 -0.2 1.9 0.7 0.8
Total 1.3 0.7 4.4 2 2.7 2.3 2.3 2.2 2.7
1.9
-0.3
12.8
1.7
6.1
9.2
11.1 11.2 11.7
16
17
20.4
19.7
25.5
6.9
10.5
9.7
7.4
0 0.2
0.9 0.6 0.8 0.6 0.1 0.2 0.8
-1.7 -1.8
-0.9 -0.4 -0.9
-0.2
1.9
0.7 0.8
1.3 0.7
4.4
2
2.7 2.3 2.3 2.2 2.7
-5
0
5
10
15
20
25
30
SCBs DFIs PCBs FCBs Total

22. Amount of NPLs by Type of Banks
2010 2011 2012 2013 2014 2015 2016 2017 2018
SCBs 107.6 91.7 215.2 166.1 227.6 272.8 310.3 373.3 428.5
DFIs 49.7 56.5 73.3 83.6 72.6 49.7 56.8 54.3 52.4
PCBs 64.3 72 130.4 143.1 184.3 253.3 230.6 294 389.8
FCBs 5.5 6.3 8.5 13 17.1 18.2 24.1 21.5 22.7
Total 227.1 226.4 427.3 405.8 501.6 594.1 621.8 743 893.4
107.6 91.7
215.2
166.1
227.6
272.8
310.3
373.3
428.5
49.7 56.5 73.3 83.6 72.6
49.7 56.8 54.3 52.464.3 72
130.4 143.1
184.3
253.3
230.6
294
389.8
5.5 6.3 8.5 13 17.1 18.2 24.1 21.5 22.7
227.1 226.4
427.3
405.8
501.6
594.1
621.8
743
893.4
0
100
200
300
400
500
600
700
800
900
1000
SCBs DFIs PCBs FCBs Total

23. Gross NPLs to Total Loans by Six State
Owned Banks
2010 2011 2012 2013 2014 2015 2016 2017 2018
Agrani Bank 12.88 11.07 25.3 17.93 16.96 18.96 25.59 17.45 17.67
Sonali Bank 23.88 17.8 33.31 30.21 25.61 25.08 28.38 35.09 26.14
Basic Bank 4.83 4.38 8.22 28.75 57.15 51.09 54.13 54.63 56.85
Janata Bank 5.24 5.83 17.42 11.12 33.72 16.54 14.73 16.54 33.72
Rupali Bank 11.96 5.94 24.96 16.75 12.15 3.7 19.9 23.4 19.21
BDBL 31.31 30.5 30.86 36.75 31.81 38.29 40.48 46.07 46.53
12.88
11.07
25.3
17.93 16.96
18.96
25.59
17.45 17.67
23.88
17.8
33.31
30.21
25.61 25.08
28.38
35.09
26.14
4.83 4.38
8.22
28.75
57.15
51.09
54.13 54.63
56.85
5.24 5.83
17.42
11.12
33.72
16.54
14.73
16.54
33.72
11.96
5.94
24.96
16.75
12.15
3.7
19.9
23.4
19.21
31.31 30.5 30.86
36.75
31.81
38.29
40.48
46.07 46.53
0
10
20
30
40
50
60
70
Agrani Bank Sonali Bank Basic Bank Janata Bank Rupali Bank BDBL

24. Required Provision and Provision
Maintained by the Banking Industry
All Banks June
2010
June
2011
June
2012
June
2013
June
2014
June
2015
June
2016
June
2017
June
2018
Amount of NPLs
227.1 226.4 427.3 405.8 501.6 594.1 621.7 743.0 893.4
Required
Provision 149.2 148.2 242.4 252.4 289.6 308.9 362.1 443.0 528.8
Provision
maintained 142.3 152.7 189.8 249.8 281.6 266.1 307.4 375.3 448.9
Excess(+)/
shortfall(-) -6.9 4.6 -52.6 -2.6 -7.9 -42.8 -54.7 -67.7 -79.9
Provision maintenance
Ratio (%) 95.4 103.0 78.3 99.0 97.2 86.1 84.9 84.7 84.9

25. Comparative Position of Provision Adequacy by Types
of BanksYear Items SCBs DFIs PCBs FCBs
June
2010
Required provision 70.64 19.07 53.31 6.19
Provision maintained 69.87 13.29 51.78 7.39
Provision maintenance
ratio (%)
98.9 69.7 97.1 119.4
June
2011
Required provision 69.8 20.6 60.0 7.5
Provision maintained 69.8 14.3 60.0 8.2
Provision maintenance
ratio (%)
100.0 69.4 100.0 109.3
June
2012
Required provision 119.2 29.8 84.4 8.9
Provision maintained 81.9 13.6 84.9 9.3
Provision maintenance
ratio (%)
68.7 45.7 100.6 104.3
June
2013
Required provision 107.8 38.3 94.8 11.6
Provision maintained 122.3 17.4 97.8 12.3
Provision maintenance
ratio (%)
113.5 45.5 103.2 106.0
June
2014
Required provision 124.2 49.3 114.4 12.5
Provision maintained 110.7 19.3 117.9 12.5
Provision maintenance
ratio (%)
89.1 39.2 103.1 100.1
Year Items SCBs DFIs PCBs FCBs
June
2015
Required provision 140.4 26.4 126.0 126.0
Provision maintained 94.7 28.4 126.6 16.5
Provision
maintenance ratio (%)
67.5 107.6 100.5 102.5
June
2016
Required provision 174.0 27.8 144.2 16.0
Provision maintained 113.2 28.4 149.4 16.4
Provision
maintenance ratio (%)
65.1 102.2 103.6 102.5
June
2017
Required provision 216.9 26.1 184.3 15.6
Provision maintained 134.3 26.2 198.2 16.5
Provision
maintenance ratio (%)
61.9 100.4 107.5 105.8
2018
June
Required provision 252.9 25.0 234.6 16.2
Provision maintained 162.0 27.9 242.0 16.9
Provision
maintenance ratio
(%)
64.1 111.6 103.2 104.3

26. Writing-off Bad Debts by Types of Bank
2010 2011 2012 2013 2014 2015 2016 2017 2018
SCBs 70.5 82.4 72.9 107.2 154.8 210.3 220.4 224.4 226.2
DFIs 31.8 32 24.5 32.6 34.2 5.6 5.6 5.6 5.6
PCBs 69.6 77.1 64.9 109.7 127.7 155.5 189.4 216.7 239.9
FCBs 2.1 2.4 2.6 3.7 4.4 5.1 7.2 8.6 10.3
Total 174 193.9 164.9 253.3 321.1 376.5 423.2 455.3 482
70.5
82.4
72.9
107.2
154.8
210.3
220.4 224.4 226.2
31.8 32 24.5 32.6 34.2
5.6 5.6 5.6 5.6
69.6 77.1
64.9
109.7
127.7
155.5
189.4
216.7
239.9
2.1 2.4 2.6 3.7 4.4 5.1 7.2 8.6 10.3
174
193.9
164.9
253.3
321.1
376.5
423.2
455.3
482
0
50
100
150
200
250
300
350
400
450
500
SCBs DFIs PCBs FCBs Total

27. Geographical NPL Distribution
Division Total Loan NPL
Dhaka 67.2% 67.5%
Chattogram 18.7% 17.5%
Barisal 1.3% 1.1%
KHULNA 4.0% 4.2%
MYMENSINGH 1.4% 2.2%
RAJSHAHI 3.8% 3.4%
RANGPUR 2.3% 2.5%
SYLHET 1.2% 1.6%
Rajshahi
3.40%
Rangpur
2.50%
Dhaka
67.50%
Khulna
4.20%
Sylhet
1.60%
Chittagong
17.50%
Barisal
1.10%
Bangladesh

28. SECTOR-WISE NONPERFORMING LOANS
DISTRIBUTION
Name of Sector 2013 2014 2015 2016 2017 2018
1 Agriculture 14.10% 12.64% 7.8% 8.9% 8.5% 5.0%
2 Industrial (Manufacturing):
2.1 RMG & Textile 16.70% 15.64% 11.9% 21% 24.6% 19%
2.2 ShipbuildingandShipbreaking 1.30% 1.54% 26.8 2.9% 2.6% 2.9%
2.5 Other Industries (Large Scale) 10.80% 12.41% 14.6% 9.8% 8.2% 11.8%
2.6 Other Industries (Small, Medium and
Cottage)
1.80% 1.43% 2.9% 7.0% 5.8% 5.5%
3 Industrial (Services):
3.1 Construction 3.9% 4.54% 4.6% 6.4% 5.7% 6.2%
3.2 Transport and Communication 1.60% 2.00% 2.1% 2.8% 2.0% 1.9%
4 Consumer Credit: 2.90% 3.00% 3.0% 3.3% 2.7% 2.6%
5 Trade and Commerce (Commercial
Loans)
12.60% 17.14% 16.7% 23.4% 23.9% 28.3%
8 Other Loans 6.90% 6.14% 7.8% 7.2% 5.9% 6.9%

29. Consequences of NPL on Banks' Profitability and
Financial Stability
2010 2011 2012 2013 2014 2015 2016 2017 2018
ROA 1.8 1.5 0.64 0.9 0.64 0.77 0.68 0.74 0.29
ROE 21 17 8.2 11.1 8.09 10.51 9.42 10.6 4.44
NPL ratio 7.3 6.1 10 8.9 9.7 8.8 9.2 9.3 10.4
1.8 1.5 0.64 0.9 0.64 0.77 0.68 0.74 0.29
21
17
8.2
11.1
8.09
10.51 9.42 10.6 4.44
7.3
6.1
10
8.9 9.7
8.8 9.2 9.3
10.4
0
5
10
15
20
25
ROA ROE NPL ratio

30. Consequences of NPL on banks'
profitability
Higher NPL would also compel
the banks to extending their
efforts in recovering the loans
from those 'bad' borrowers
Bank needs to
keep higher
provision
Low public
confidence
Returns on Assets
(ROA) and Returns
of Equity (ROE)
tend to fall down
NPL results
into economic
slowdown

31. Non-performing Loans in the South Asian countries
Bangladesh India Pakistan Bhutan Maldives Sri Lanka
2010 7.3 2.4 14.7 5.2 17 5.4
2011 6.1 2.3 15.7 3.9 19 3.8
2012 10 2.8 14.6 5.4 20.9 3.7
2013 8.9 3.2 13.3 7 17.6 5.6
2014 9.7 3.8 12.3 6.8 17.5 4.2
2015 8.8 4.3 11.4 6.6 14.1 3.2
2016 9.2 7.5 10.1 7.2 10.6 2.6
2017 9.3 9.3 8.4 8.4 10.5 2.5
2018 10.4 11.18 8.2 11.5 9 3.4
7.3
2.4
14.7
5.2
17
5.4
6.1
2.3
15.7
3.9
19
3.8
10
2.8
14.6
5.4
20.9
3.7
8.9
3.2
13.3
7
17.6
5.6
9.7
3.8
12.3
6.8
17.5
4.2
8.8
4.3
11.4
6.6
14.1
3.2
9.2
7.5
10.1
7.2
10.6
2.6
9.3 9.3
8.4 8.4
10.5
2.5
10.4
11.18
8.2
11.5
9
3.4
0
5
10
15
20
25
percentage
2010 2011 2012 2013 2014 2015 2016 2017 2018

32. Findings
Bank’s Policy of NPL
NPL’s Effect on bank’s
Performance
Increase of the NPL Amount
The main causes of increasing NPLs are-
• Not monitoring the loans properly
• Misuse of the political power
• A large number of competitors in banking sector
• Willful defaulter
• Unattractive business industry
Large Number of Banks and Financial
Institutions Compared to our Economy
South Asia are also
experiencing the same
problem

33. Recommendations
Lessen the
Interference
of Political
Parties
Judicial Use
of
Rescheduling
and Write-
off
Ensuring
Accountability
of Employees
Punishing Willful
Defaulters
through Legal
Proceedings
Reducing
Recapitalization
Structured
and Regular
Monitoring
Strictly Follow Rules
and Regulation
Provided by BB for
NPL Management
Client Profile
&
Documentati
on
Proper
Lending
Practices
Incentive and
Training
Programs for
Employees

34. Thanks
You