On Wednesday, Finance Minister AHM Mustafa Kamal said that the amount of defaulted loans stood at Tk1.26 lakh crore till March this year. Banks and financial institutions are unable to realise another Tk 21,046 crore due to High Court stay orders. The Business Standard spoke to Professor Prashanta Kumar Banerjee of the Bangladesh Institute of Bank Management, who recently presented the keynote paper at a roundtable discussion titled 'Asset Management Company (AMC): A Way-Out to Solve NPL Problems in Bangladesh', to discuss the intricacies of establishing such a mechanism.
Why do we need to establish a Public Asset Management Company?
In any market, all types of instruments should be available. Bangladesh Bank is trying its level best, and I would say it has successfully brought down the rate of classified loans. In 1990, the classified loans stood at 51%, which has now come down to 8.5%. Overall, classified loans have come down to a great extent. But we need to bring down the current rate of bad loans. To successfully do so, we need to have various mechanisms in place.
We will use the one which will be more effective. If the government and the Bangladesh Bank want, then there can also be an asset management company to complement the existing laws and regulations.
Just because we conducted a research does not mean that the government or Bangladesh Bank will have to accept it. We have given some research inputs; more discussion and analysis is needed, and then if the government wants to go ahead, they can go ahead with it.
How will the Public Asset Management Company work?
There will be some conditions on the kind of loans the company could buy from different banks. We will have to conduct more research in this regard. If a loan meets certain conditions to be taken over by the Public Asset Management Company, the banks will hand over the loan to the PAMC. This process can be optional or mandatory, depending on the law.
The company will also set the price of the loan depending on the quality of the loan. If the quality of the loan is good, then the price will be high. And low if the quality of the loan is bad. Banks will make some money rather than nothing. The big thing is that banks will be rid of worry.
The existing laws are there, and they are working well. What Public Asset Management Company will be is an additional tool. But we will need to do more research to frame the operation module as well as the institutional module. Investors can be local as well as foreign; they will buy the loans from the company. But all will depend on the law.
How will the Public Asset Management Company help reduce non-performing loans?
I think there should be other tools in the market (to curb non-performing loans) alongside the existing laws. If Bangladesh Bank believes they can reduce non-performing loans with existing mechanisms, then we will not need to establish a Public Asset Management Company. If the government thinks it needs to establish such a company, it will be established.
The primary purpose of this research is to point out the possibility of establishing a Public Asset Management Company. If the policymakers want to keep it as an added tool with existing rules and regulations, they can do it. South Korea and Malaysia have successfully brought down their non-performing loans through such means.
India is also in the initial stages. The purpose of the research was to create awareness. If we can sell the written-off loans to the Public Asset Management Company, we will get some money, which could not be realised for so long.
We need to keep the private sector in mind as well. They are playing an essential role in generating employment in the country. Hence, too much pressure should not be put on them regarding loan repayments. The PAMC should neither be too lenient nor too stringent.
Sometimes we reschedule loans; why do we do that? If a corporation cannot pay the loan today, it will do it two days later. We will not coerce them; what we will do is persuade.
We will have to establish a Public Asset Management Company in such a way that the banking sector gets benefits as well as the corporate sector. It should be a win-win situation. Public Asset Management Company will not exist forever. Its lifetime should ideally be 5-6 years.
Many banks have disbursed loans without taking proper collateral. How will the price be set for loans that have no collateral?
Banks can disburse loans without collateral when they see the business of a client is very good. Collateral is unnecessary if a client scores well in the internal credit rating system. In the case of pricing, we will have to look at the quality of the loan first.
If the quality of a loan is good, the Public Asset Management Company will buy it at a good price. If the quality is bad, the company will buy it at a low price.
If we can bring down bad loans, it will be good for our economy. As a developing country, the rate of non-performing loans is abnormal. We will have to keep on trying to bring down bad loans.
Are there any risks associated with passing the liabilities of banks to a Public Asset Management Company?
There are no such risks as the Public Asset Management Company will only buy a loan after taking all factors into consideration. When you buy an apple, do you take the rotten one?
The Public Asset Management Company will analyse these loans carefully. When they see that the quality of the loan is good, the banks will get a good price. The bank wants to have good quality loans so that they get a good price. The banks will improve the quality of the loans. The banks will feel the urge to make the loans good.
And those who will be in the Public Asset Management Company should be impervious to external influences.
We will do more research, and Bangladesh Bank will do further research. If they believe that it is necessary for our country, they will establish the company.