The National Bank of Pakistan (NBP) is closing one of its branches in Bangladesh after failing to get almost 98 percent of its loans back from debtors, the bank’s country chief said, arabnews.com reports.
State-owned NBP has offices in 21 countries and assets valued at $ 20 billion. It has been operating in Bangladesh as NBP-BD since 1994, has four branches in three cities and serves around 8,000 customers.
The bank ran into trouble in 2013-24 after numerous borrowers – mostly in the apparel sector – failed to meet their loan commitments, data from the Central Bank of Bangladesh shows. In December, NBP-BD’s defaults were $ 164 million, or 97.7 percent of total loans.
“We are going to close our Sylhet office due to an exceptional situation,” Mohammad Quamruzzaman, CEO of NBP-BD, told Arab News earlier this week. “The head office in Pakistan has given us the approval and the shutdown process is running.”
Over the past six years, the bank has filed 143 lawsuits against defaulters, reclaiming about $ 23 million, Quamruzzaman said, adding that the bank has now tried to reclaim more without litigation and suspended loan disbursements last year.
“Our high priority now is to reclaim the bad loans. We are focusing on an Alternative Dispute Resolution (ADR) where we sit at the negotiating table with the customers, ”he said. “The good news is that we are getting some positive results in the ADR process, where the banks offer concessions to the defaulting parties and give them the opportunity to have a clear bank credit balance.”
Without clearing their records, Quamruzzaman added, companies “will not be able to take out loans from other banks in the future.”
Manzoorul Alam, general manager of Ibrahim Composite Textile mill, which borrowed $ 8.5 million from NBP-BD in fiscal 2012-13, said negotiations with the bank were ongoing.
“During the negotiations, we offered the bank to repay 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 meeting with the bank about three weeks ago and they have promised to resolve the matter shortly after our negotiations.”
Pakistani officials at NBP headquarters in Karachi were unavailable for comment despite repeated requests for comment. The central bank, Bangladesh Bank, declined to comment.
Zahid Hussain, former chief economist at the World Bank in Dhaka, told Arab News that the central bank of Bangladesh should create a safety net for lenders by strengthening its oversight and “rescue the NBP-BD from deep crisis.”
He added, “There are few options for the central bank to consider, such as injecting new funds, merging with a solvent bank, or appointing an administrator. In the current scenario, the NBP should conduct its business under the strict supervision of the central bank. “
Another Bangladeshi economist, Ahsan H. Mansoor, executive director of the Policy Research Institute, said the NBP’s situation was exceptional, with defaulted loans accounting for about 10 percent of all bank loans in the country.
“This is an exceptional situation where NBP-BD is struggling with around 98 percent loan default,” he said, adding, “There should be an investigation into who these borrowers were and how it came about.”
NBP-BD’s 2019 annual report found stores recorded a net loss of 664 million BDT ($ 7.8 million) in Bangladesh-taka in 2019, up 60 percent year over year (YoY) from a loss of 415 Million BDT in 2018.
“The main reasons for this loss were a 20 percent year-over-year increase in interest expense to 1.6 billion messages.
The branches caused operating expenses of 197 million BDT compared to 174 million BDT in the same period of the previous year, which corresponds to an increase of 13 percent compared to the previous year, which “increases the pressure on the bottom line”.
Tawfik said, “A turnaround in overall bottom line depends on the successful recovery of loans and advances, increasing business volumes, the success of commercial and strategic initiatives, and financial support from affected stakeholders.”