DEFINITION OF 'NONPERFORMING LOAN - NPL'

A sum of borrowed money upon which the debtor has not made his or her scheduled
payments for at least 90 days. A nonperforming loan is either in default or close to being in
default. Once a loan is nonperforming, the odds that it will be repaid in full are considered to
be substantially lower. If the debtor starts making payments again on a nonperforming loan, it
becomes a re-performing loan, even if the debtor has not caught up on all the missed
payments.

INVESTOPEDIA EXPLAINS 'NONPERFORMING LOAN - NPL'

Institutions holding nonperforming loans in their portfolios may choose to sell them to other
investors in order to get rid of risky assets and clean up their balance sheets. Sales of
nonperforming loans must be carefully considered since they can have numerous financial
implications, including affecting the company's profit and loss, and tax situations

The ratio of non-performing loan (NPL), in both gross and net terms, increased slightly at the end of third quarter of 2014 compared
with that of second quarter of 2014.
It was recently announced in the half-yearly monetary policy statement (MPS) for the first half of current fiscal 2014-15. The MPS said
gross NPL went up to 10.5 per cent at the end of Q3-2014 from 8.9 per cent of Q2-2014.
The deterioration was across the board for all types of banks except foreign commercial banks, but particularly for state-owned
commercial and specialised banks, the statement noted.
The reasons for the increase of NPL include having to classify loans stemming from the well-publicised scams in the banking sector
as well as difficulties in loan repayment due to the economic disruptions resulting from national strikes, it said.
Moreover, the capital adequacy ratio for all banks decreased slightly to 11.3 per cent in Q3, 2014 from 11.5 per cent in Q2, 2014
although still surpassing the minimum 10 per cent regulatory requirement, the MPS added.
Among the profitability measures, return on asset in the banking sector improved from 0.64 per cent at the end of December 2012 to
0.90 per cent at the end of December 2013, the statement said.
This was primarily due to an approximately 18 per cent increase in non-interest income (especially from investments in government
securities) and small provision deduction requirement for bad debt by state-owned commercial banks (SOCBs) in 2013 under the
temporarily relaxed loan scheduling policy, it added.
The MPS also said a number of steps were taken in the monetary policy for the first half of 2014-15 to strengthen the financial system
and improve asset quality.
Since the NPLs are concentrated among SOCBs, a stringent financial improvement plan for four SOCBs and Basic Bank is being
enforced, the statement said adding that these include differential ceilings on loan growth varying according to bank performance
indicators and the need to provide regular reporting to Bangladesh Bank on a number of issues including loans beyond a certain limit,
single borrower exposure, off-balance sheet items and so on.
In addition, an initial tranche of recapitalization funds was disbursed in FY 14 and the future tranche releases are conditional on
meeting bank automation targets.
The SOCB boards have recently developed strengthened internal control and compliance policies, the statement said adding that
detailed guidelines were issued to all banks on improving corporate governance in line with the amended Bank Companies Act.
The central bank will closely monitor adherence to these guidelines, which in turn are expected to improve asset quality, it added.