India loses status as ‘free’ nation in Freedom House 2021 report

India loses status as ‘free’ nation in Freedom House 2021 report
India loses status as ‘free’ nation in Freedom House 2021 report

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Jeddah - Yasmine El Tohamy - ‘Extraordinary’ loan delinquency forces Pakistani state-owned bank to close Bangladesh branch

DHAKA/KARACHI, Pakistan: The National Bank of Pakistan (NBP) is closing one of its Bangladesh branches after failing to recover nearly 98 percent of its loans from debtors, the bank’s country head has said.

The state-owned NBP has branches in 21 countries and assets worth $20 billion. It has been operating in Bangladesh as NBP-BD since 1994, with four branches in three cities, serving about 8,000 customers.

The bank ran into trouble in 2013-24, after numerous debtors — mainly from the apparel sector — failed to meet loan obligations, Bangladesh central bank data shows. In December, NBP-BD’s defaults amounted to $164 million, or 97.7 percent of its total loans.

“We are going to close the operations at our Sylhet branch due to an extraordinary situation,” Mohammad Quamruzzaman, NBP-BD chief executive, told Arab News earlier this week. “The headquarters in Pakistan has given us the approval, and the shutdown process is underway.”

In the past six years, the bank has filed 143 cases against loan defaulters, recovering about $23 million, Quamruzzaman said, adding that the bank was now trying to recover more without litigation and had suspended loan disbursement last year.

“Our high priority now is to recover the non-performing loans. We are focusing on an alternative dispute resolution (ADR) process where we sit at the negotiation table with the clients,” he said. “The good news is that we are receiving some positive results in the ADR process where the banks offer concessions to the defaulters and they, in turn, get the opportunity to have a clear banking credit record.”

Without clearing their records, Quamruzzaman added, businesses “cannot avail loans from any other banks in the future.”

Manzoorul Alam, managing director of Ibrahim Composite Textile mill, which borrowed $8.5 million from NBP-BD in the 2012-13 fiscal year, said negotiations with the bank were underway.

“During negotiations, we offered to repay the bank around $16.5 million. We sent this proposal in December 2019 and there was no work last year due to the pandemic,” Alam told Arab News. “I had a discussion with the bank around three weeks ago and they assured to resolve the matter shortly according to our negotiations.”

Pakistani officials at the NBP’s head office in Karachi were unavailable for comment despite repeated requests. Bangladesh Bank, the central bank, declined to comment.

Zahid Hussain, former lead economist of the World Bank in Dhaka, told Arab News that the Bangladeshi central bank should create a safety net for lenders by enhancing its supervision, and “save the NBP-BD from the deep crisis.”

He added: “There are few options which the central bank may consider, like injecting new funds, merging with a solvent bank, or the appointment of an administrator. In the current scenario, NBP should run its operations under the close supervision of the central bank.”

Another Bangladeshi economist, Policy Research Institute’s Executive Director Ahsan H. Mansoor, said the NBP’s situation was extraordinary as defaulted loans are about 10 percent of all loans at banks in the country.

“This is an extraordinary situation that NBP-BD is struggling with around 98 percent defaulted loans,” he said, adding: “There should be an investigation into who these borrowers were and how it took place.”

The NBP-BD’s 2019 annual report revealed that its branches recorded a net loss of Bangladeshi taka (BDT) 664 million ($7.8 million) in 2019, up 60 percent year-on-year (YoY) from a BDT 415 million loss in 2018. 

“The main reasons for this loss were a 20 percent YoY jump in interest expense to BDT 1.6 billion and a whopping increase in total provisioning to BDT 137 million,” Sana Tawfik, banking sector analyst at Karachi-based Arif Habib Limited, told Arab News.

The branches incurred an operating expenditure of BDT 197 million compared to BDT 174 million recorded in the same period last year, marking an increase of 13 percent YoY, which “increased pressure on the bottom-line.”  

Tawfik said: “A turnaround in the overall earnings is dependent upon the successful recovery of loans and advances, increasing business volumes, the success of commercial and strategic initiatives and financial support from concerned stakeholders.”

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