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Banks with lowest NPL

How foreign banks keep NPL in check while locals struggle
AHSAN HABIB
Thirteen banks -- seven foreign and six local -- are performing outstandingly at present with a non-performing loan (NPL) ratio of less than 3 per cent when the sectoral ratio goes past 8 per cent.
These 13 with their good corporate governance and due diligence in banking activities have played a vital role in keeping the sectoral ratio to below the level of 10 per cent.
The seven foreign banks are State Bank of India, Standard Chartered Bangladesh, HSBC, Citibank NA, Bank Alfalah Bangladesh, Woori Bank, Commercial Bank of Ceylon.
Here, State Bank of India has the lowest NPL ratio of 0.35 per cent.
Two old private banks--Eastern Bank and Pubali Bank--are in the group with four new ones such as Midland Bank, Bengal Commercial Bank and Modhumoti Bank and Community Bank.
Eastern Bank was successful in keeping the NPL ratio to below 3 per cent as it follows some principles in the lending process, said Ali Reza Iftekhar, managing director and CEO of Eastern Bank.
The bank is very much choosy in case of the selection of the borrowers so that no wilful defaulter can take loan, he said.
EBL’s NPL ratio is 2.78 per cent of its loans, which is one of the lowest in private commercial banks in Bangladesh.
In the loan approval process, it gives a loan after analysing the potential and challenges of the businesses of the borrowers rigorously, Iftekhar said.
AHSAN HABIB
At a time when almost all of the local banks in Bangladesh are grappling with higher non-performing loans (NPLs), most foreign lenders have been able to keep the default rate in check.
Due diligence, independence of the credit department and corporate governance have been behind their stellar success for their lower bad loan ratio.
The average NPL ratio of nine foreign banks was 4.91 per cent in 2022, according to the Bangladesh Bank data.
For the state-run banks, the average NPL ratio was 20.28 per cent and for the specialised banks, it was 12.8 per cent. The NPL averaged 5.13 per cent for the private commercial banks.
“The foreign banks are good at managing risks for which they have an excellent policy framework, supported by robust processes managed by an effective organisation structure,” said Muhammad A (Rumee) Ali, a former deputy governor of the central bank.
“In short, the answer lies in good governance,” said the former chief executive officer of Standard Chartered Bangladesh and former chairman of Brac Bank.
Anis A Khan, a former chairman of the Association of Bankers, Bangladesh Limited, a platform for the CEOs of lenders, echoed Ali, saying corporate governance is the main differentiator.
Khan has experience working at Standard Chartered and Grindlays Bank for 21 years at home and abroad.
He said state-run banks are influenced politically while private banks are influenced by board members.
He said officials of foreign banks enjoy full independence when it comes to approving loans.
“At local banks, the board approves loans and this system is flawed. The board should not be involved in the process in any way.”
The former managing director of IDLC Finance and Mutual Trust Bank said at multinational banks, credit officials always keep their eyes on borrowers’ business and monitor them.
“Some local banks are following good corporate governance and their NPL ratio is much lower than others.”