Rising default loans affecting banks’ profits
The growing trend of default loans has put an adverse impact on banks’ profitability and their daily operations, said Bangladesh Bank Deputy Governor SM Moniruzzaman yesterday.
“It is a harsh reality,” he said at a roundtable on “Corporate Guarantee: Does It Work in Recovery of Loan?”
The Bangladesh Institute of Bank Management (BIBM) organised the event at its office in the capital.
Banks have to keep provisioning against their default loans, which directly affects their net profit, Moniruzzaman said. The increase in default loans widen the volume of risk-weighted assets (RWA) in the banking sector, which, in turn, will create pressure on maintaining the regulatory capital, he added.
Banks should follow a cautious policy while disbursing loans by way of taking corporate guarantees, said Barkat-e-Khuda, a professor of the BIBM.
Bankers should acquire detailed knowledge of corporate guarantee, which will help them disburse loans the proper way, he added. Mosharref Hossain, assistant professor of the BIBM, presented the keynote paper at the discussion.
The paper recommended proper assessment by banks before accepting corporate guarantee.
Banks should accept the guarantee provided by a credible and solvent entity only, it said.
Or else, the guarantee would not be of much help in the event of non-repayment by the borrower, according to the study.
The study will help explore the enforceability and effectiveness of corporate guarantee in loan recovery in Bangladesh, said Md Nazimuddin, director general of the BIBM.
The paper will also help the regulators as it has delineated the regulatory aspects of corporate guarantee in detail, he said. Prashanta Kumar Banerjee, a professor and director of the BIBM; Helal Ahmed Chowdhury, a supernumerary professor of the organisation; and Yasin Ali, a former supernumerary professor, spoke among others at the event.
Sources:
https://www.thedailystar.net/business/banking/news/rising-default-loans-affecting-banks-profits-1773232
