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Solutions to Bangladesh's NPL Crisis

Non-performing loans (NPLs) have become a major crisis for Bangladesh's banking sector in recent years. NPLs significantly impact banks' income structures as loans are given to borrowers but neither the principal nor interest is repaid. One potential solution is for banks to adopt principles of Islamic banking when lending, such as hire purchase agreements where the bank maintains ownership until full payment is made, reducing the risk of default. Additionally, more rigorous analysis of borrowers' creditworthiness and providing enterprises with advisory services on fund management could help lower the NPL rate.

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shakhawat hossain
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98 views3 pages

Solutions to Bangladesh's NPL Crisis

Non-performing loans (NPLs) have become a major crisis for Bangladesh's banking sector in recent years. NPLs significantly impact banks' income structures as loans are given to borrowers but neither the principal nor interest is repaid. One potential solution is for banks to adopt principles of Islamic banking when lending, such as hire purchase agreements where the bank maintains ownership until full payment is made, reducing the risk of default. Additionally, more rigorous analysis of borrowers' creditworthiness and providing enterprises with advisory services on fund management could help lower the NPL rate.

Uploaded by

shakhawat hossain
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
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Crisis in banking sector for NPL; a possible

solution
Shakhawat Hossain,B&I,CU

Over the recent years Bangladesh has faced and still is facing the curse of non-performing loans.

Banking sector is now at a great crisis with this curse because it largely influencing the income structure

of banks. The so called NPL is affirmed as the loan which is lent to borrowers but neither the principal

amount nor the calculated earned interest being paid by the specified borrowers. The main reason that can

be attributed to this tremendous issue can be specified and those are inefficient fund management of

borrowers, inefficient asset liability management of enterprise that borrowed, unwillingness to pay,

employing the loan money in unproductive reasons, lack of financial control, low market share,

inefficient analysis of credit worthiness of borrowers, government’s compromise to some specialized

sector and segment of market and many other reasons.

A study of Bangladesh bank shows that NPL is fluctuating but in an increasing trend over the past

quarters.
The effect of NPL in an economy that it is totally unsound cannot be denied. It weakens banks financial

condition and performance which is proved to be dangerous for a country’s economic health.
A potential solution to non performing loan can be adopting Islamic banking principles while lending

funds. A most common Islamic banking policy is that while lending funds if banks make a hire purchase

agreement with the borrower, the risk of that loan of being non performing will be reduced. Because hire

purchase principle of Islamic finance allows the lender to justify the purpose of loan meticulously. The

lender watches out for why the lender is taking the loan. If we want to have reaper benefit from this

statement, let’s say a borrower want to purchase some working capital goods for his business, the lender

can make the purchase on behalf of the borrower and transfer the possession of the goods to the borrower

and but keeps the ownership in his part allowing the lender to make payments on installment basis for the

goods. As soon as the payment is fully made the lender transfers the ownership to the borrower. This

procedure can help reduce NPL rate of banks.

Also critical analysis of credit worthiness of borrowers, assisting enterprises by providing them with

various advisory service regarding fund control and investment can also reduce this rate.

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