An increase in the gross domestic product (GDP) reduces non-performing loans in advanced economies, but it has no such impact on the bad loans in Bangladesh, found a study of the Bangladesh Institute of Bank Management (BIBM). growth
The BIBM presented the report during a webinar titled “NPL in Banks of Bangladesh: Macro Economic and Bank Specific Perspective” yesterday.
The growths of GDP and NPL are inversely proportional because a strong, positive growth in real GDP usually translates into more income, which improves the debt servicing capacity of borrowers, thereby contributing to lower the NPLs, says the report.
Interestingly, Bangladesh’s GDP growth rate has no impact on the NPLs of banks, it said.
“This is because of the presence of a substantial number of wilful defaulters,” said Md Alamgir, an associate professor at the BIBM who presented the report.
The amount of the NPLs in the banking sector stood at Tk 96,116 crore at the end of June 2020, which was 9.16 per cent of the total amount of loan disbursed.
Average lending rate of banks has an immense impact on the NPLs, Alamgir said, adding that both regulators and bankers could assist borrowers in Bangladesh by charging a lower rate of interest and thereby increasing their capacity to repay loans.
The BIBM analysis shows that loan growth rate has an inverse relationship with the NPLs.
The increase of the NPL both in quantity and percentage of the total loans disbursed is connected to either financial crises or bank failures or both, and it negatively impacts private investment, said Alamgir.
The report recommends developing a data sharing system connecting the banks and Bangladesh Bank so that lenders can carry out a background check to identify bad debtors.