Bankers and academicians have cited overfinancing, dictated credit, lack of sufficient information and database of bad borrowers as key reasons for rising non-performing loan (NPL) in Bangladesh.
Bad choice of clients, unfavourable legal system for banks and a lack of strong credit rating system are among other reasons behind growing NPL, they said.
They suggested that banks look into documents, accounting records and balance sheets before choosing a right borrower rather than collateral and certain papers to avert a loan becoming NPL.
Banks should have a right to reward and punish good and bad borrowers by imposing different rate of interest instead of capping 9.0 per cent for all borrowers.
The speakers said this during a webinar styled 'Infrastructure Lending by Banks: Corporate Vs. Project Financing Approach' hosted by the Bangladesh Institute of Bank Management (BIBM) on Wednesday.
Speaking as the chief guest, Bangladesh Bank (BB) deputy governor SM Moniruzzaman said the legal system is not favourable to recover money from a bad loan.
NPL seriously affects private-sector investment, he said, adding that bankers should not fully rely on collateral. "Only collateral won't guarantee a loan."
Mr Moniruzzaman said the NPL situation in Bangladesh is not that much bad. "We're still in a good situation compared to other SAARC countries."
BB executive director Md Humayun Kabir said bankers are not much interested in providing loans to small businesses.
Stimulus packages for larger industries have been disbursed but banks are not interested in giving loans to small and medium industries, he added.
Mr Kabir said banks should look into micro, small and medium industries.
There are many defaulters who are bankrupt not for their inability to repay, but for their unwillingness.
Mutual Trust Bank managing director (MD) and CEO Syed Mahbubur Rahman said the NPL situation in the banking sector has worsened in the past four to five years.
"NPL was good in the 2000s, 9.5-per cent NPL is not good at all. There is no reason to be satisfied that NPL is good in Bangladesh among SAARC countries."
Mr Rahman said the central bank should look into the transparency in appointing independent directors.
He said all banks are chasing few good customers where many banks are putting their money on one "good borrower" which ultimately turns into bankruptcy.
"Whenever a new bank comes in the market, they chase good customers who have already taken money from another bank, it is unhealthy competition."
Citing scarcity of resources, Mr Rahman questioned, "We have 60 banks in the country, but do we have good resources and qualified people in the banks?"
Land registration process should be digitalised to get proper documents of collateral land guarantee.
The banker said the BB should allow auditing accounts of any borrower, if needed, adding that valuation process and credit-rating system should be monitored.
Sonali Bank MD and CEO Ataur Rahman Pradhan said NPL will come down gradually if the capital market becomes strengthened further to provide larger loans.
Banks should not invest in long-term loans, he said, banks are only to provide working loans.
Banks are unable to carry out quality risk assessment while approving a loan for lack of sufficient data in the central bank and other government agencies.
Mr Pradhan said security guarantee should be eased and loan be based on documents and balance sheets.
"There is no guarantee that we'll be able to recover loan. We filed a case against an NPL loan in 1985, we haven't got final verdict until today."
Mr Pradhan said banks should build syndication to avoid overfinancing of a client, urging the authorities to set up few dedicated courts and benches in High Court for loan-related litigations.
First Security Islami Bank MD Syed Waseque Md Ali said bankers should work with due diligence in selecting a borrower.
Bankers should stop chasing good and bigger clients, rather they should create new investors, he opined.
Mr Ali said loan interest cap cannot remain same for all loans.
"If any borrower is ready to pay more interest or if any bank is willing to give less than 9.0 per cent, banks should do it; 9.0 per cent can't be the only yardstick."
If not now, he said, nine per cent interest rate should be reviewed sometime in future.
A team of researchers, led by associate professor Md Alamgir, presented a study styled 'NPL in Banks of Bangladesh: Macro Economic and Bank Specific Perspective' at the event.
The study suggested that the BB frame a policy to stop multibank borrowers to reduce NPL to some extent.
The BB can develop cloud computing that would be integrated with the information system of all banks to know about bad debtors, it said.
The study observed that NPL can largely be reduced by improving return on assets through proper supervision, monitoring and follow-up action.
Management can get the early warning signal about potential classified loan, thereby taking proactive action alongside remedial measures to make loan unclassified.
A lender may employ an agent in the borrower's company, especially in case of large corporate borrowers, to monitor accounts section whether the lending amount is properly being used.
The study recommended that the government initiate to prevent political clout from creating pressure for sanctioning loans to ineligible customers.
Both regulators and bankers can assist borrowers in charging lower rate of interest, thus increasing their capacity to repay loans.