Experts at a roundtable on Wednesday underscored the need for increasing awareness about the corporate guarantee of bank loan as the non-performing loan (NPL) has become a matter of concern.
They observed that corporate guarantee could play a vital role to reduce the huge amount of Non-Performing Loans (NPL).
The speaker came up with the observation at the discussion on ‘Corporate Guarantee: Does It Work in Recovery of Loan?’ held at the Bangladesh Institute of Bank Management (BIBM) in the city, said a press release.
Chairman of BIBM executive committee and Bangladesh Bank deputy governor SM Moniruzzaman attended the meeting as chief guest while former professor of Dhaka University Muzaffer Ahmed and BIBM supernumerary professor Helal Ahmed Chowdhury were present, among others.
Bangladesh Bank executive director and director general of BIBM Md Nazimuddin chaired the meeting.
A paper titled ‘Corporate Guarantee: Does It Work in Recovery of Loan?’ was presented by assistant professor of BIBM Md Mosharref Hossain.
The broad objective of the discussion was to identify whether corporate guarantee works for recovering loan in Bangladesh.
The study recommended that proper assessment by the bank before accepting the guarantee was crucial. Banks should accept the guarantee provided by a credible and solvent entity only. In absence of these, the guarantee will not be effective in recovery of loan in case of non-repayment by the principal borrower.
Moniruzzaman said it was a harsh reality that the growing trend of NPL in the banking industry in Bangladesh was a major concern for policymakers and the stakeholders.
‘The NPL has adverse effect on the bank’s day to day operations and profitability. Banks have to keep excess provision against defaulted loan which directly affects the net profit,’ he added.
Similarly, with increasing NPLs, Risk-weighted Assets (RWA) would increase; which, in turn, would create pressure on maintaining the regulatory capital, he said.
The deputy governor also said that as part of the credit risk management practices, banks usually accepted securities in different forms to mitigate the potential credit risk.
‘Obtaining security for loans is one of the safeguards that banks exercise to secure their interests. Commercial banks consider both tangible and intangible securities in this respect,’ he added.
Nazimuddin said that this study would help to explore the enforceability and effectiveness of corporate guarantee in recovery of loan in Bangladesh.
‘The paper will also help the regulators as it delineated the regulatory aspects of corporate guarantee in detail,’ he added.
Muzaffer Ahmed said guarantees- whether issued by individuals or corporates, formed an essential feature of doing business and creating or receiving credit.
‘In this connection, the current study of BIBM on corporate guarantee may give us some key points for thinking further,’ he added.
A good number of participants including senior bank executives, academicians, media representatives, faculty members of BIBM took part in the roundtable discussion.
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