Non-Performing Loans: A Catastrophic Phenomena in Banking Sector of Bangladesh

Abstract

Nonperforming loan (NPL) is one of the most cataclysmic phenomena for the entire banking industry in Bangladesh. NPLs in the banking sector have experienced a monstrous escalation of 300% in the last decade and statistically this figure is more than 1000 billion of Bangladeshi Taka (BDT). Even though international standards of loan classification and provisioning system is being adopted, the management of NPL is found unproductive. Fundamentally, deficiency of good governance, weak supervision, corruption, political interference in approving loans, culture of impunity and professional ineptness of bankers to deal with the pressing issue have played an instrumental role for the swift upsurge of NPLs. Pertaining to preventive measures, prominence needs to be placed on credit screening, loan surveillance, stringent law enforcement, centralized loan authorization system, strong monetary policy and strong loan review functionaries. Therefore, this study has emphasized on the challenges of NPL, evocative ways for improving the debt recovery environment and cracking the NPL problems in order to safeguard a sustainable banking sector of the country.

Keywords: non-performing loan, loan classifications, provisioning, good governance, sustainable banking

DOI: 10.7176/EJBM/12-27-14

Publication date:September 30th 2020