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Mohi uddin
A Study on Non-Performing Loan:
From the Perspective of the Banking
Industry in Bangladesh
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
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
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unpublished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.
Overvi
ew of
NPL
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.
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:
Provisions against NPL
General Provision
Specific Provision
There are 2 types of loan loss provisions-
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%
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
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
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
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
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
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
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
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
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
Overall NPL
Scenario of
Bangladesh
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
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
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
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
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
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
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
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
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%
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
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
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
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
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
Thanks
You

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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.
  • 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
  • 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