Asian Banks Tackle Bad Loans with Capital Injection and Collateral
Asian banks are actively addressing the issue of bad loans by requiring borrowers to provide capital, additional collateral, and well-structured repayment plans, rather than simply allowing for flexibility in rescheduling. This disciplined approach aims to mitigate risk effectively.
Sohail R K Hussain, the managing director of a prominent bank, shared insights with Business Standard, expressing their goal to lower default loans to single digits by the end of the next year. He emphasized that stricter loan classification criteria could necessitate larger reserves, potentially influencing both profitability and capital adequacy in the short term.
Future Aspirations for Growth
Looking to the future, Bank Asia aims to rank among the top two to three banks in the country within the next three to five years, focusing not just on assets and profits but also prioritizing efficiency, governance, transparency, and sustainable practices.
Performance Amidst Challenges
In response to a query about the bank’s performance during the current political and economic turmoil, Hussain highlighted a strong performance for the first nine months of 2025, with profit after tax reaching Taka 351 million—up 71% year-on-year. Earnings per share also soared by 79%, while net asset value increased by 21% to Tk 29.28.
The bank is in a solid financial position, maintaining healthy liquidity ratios and a favorable equity ratio. With a focus on operational efficiency, they have managed a low cost-to-earnings ratio of 36.8%. Due to weak private sector credit demand, Bank Asia has channeled surplus liquidity into government securities, resulting in a nearly doubled investment return and a 12% rise in deposits to Tk 446,153 million.
Although the ratio of non-performing loans has risen above 10%, the bank is equipped with adequate reserves, evidenced by a provision coverage improvement to 86.39%. This increase in non-performing loans can largely be attributed to stringent credit classification rules and a challenging economic climate.
Product Differentiation
When discussing product offerings, Bank Asia prides itself on inclusivity and innovation. The bank has developed a diverse range of products aimed at various demographics—individuals, families, businesses, and entrepreneurs in both urban and rural settings.
They provide a selection of deposit accounts including Savings and Star Savings Accounts, along with specialized schemes for various customer segments, such as senior citizens and women. Their digital initiatives aim to simplify banking processes, with tools like the Bank Asia SmartApp facilitating remote account opening and loan applications for SMEs.
Challenges Ahead
Regarding the new guidelines on loan classification, Hussain noted that the stricter rules set by Bangladesh Bank represent a significant shift in loan assessment and management. As the regulations tighten, banks will need to move towards the expected credit loss method under IFRS 9, which could initially increase non-performing loans due to reduced grace periods.
This transition requires notable investment in data systems and analytics, as well as ensuring staff are well-equipped to manage these changes effectively. However, he believes that these adjustments can ultimately yield a more resilient banking sector.
Addressing Future Challenges
While some positive economic signals exist—like rising foreign reserves and increasing remittance inflows—the overarching political stability remains vital for attracting new investments. Amidst this uncertainty, the banking sector faces pressures with default loans exceeding Taka 600,000 thousand, making prudent lending essential.
Bank Asia is focusing on systematic loan recovery while addressing potential risks in new credit assessments. They emphasize thorough evaluations tailored to each borrower’s business type to ensure sustainable lending practices.
Investment Demand and Sector Challenges
The banking sector is grappling with a challenging economic landscape, characterized by a slow GDP growth and plummeting private sector credit growth. This slowdown poses immediate challenges, including reduced loan demand and increased competition for high-quality borrowers.
Banks are under pressure from high operating costs as they seek ways to balance growth with shareholder expectations. Nevertheless, the resilience shown by the sector in the face of adversity hints at potential opportunities for innovation and transformation.
Regulatory Reforms
Recent moves by Bangladesh Bank and the interim government to improve the regulatory framework have been encouraging. Proposed amendments to various banking laws aim to bolster governance and accountability throughout the sector. However, it remains critical that the central bank retains complete autonomy to avoid past governance issues. Ensuring effective implementation is crucial as the industry looks to build a more stable banking environment.
A Vision for the Future
Ultimately, Bank Asia aspires to be recognized as one of the top banks in Bangladesh over the next few years, not only for asset quantity but also for efficiency, governance, and sustainability. Committed to financial inclusion, the bank plans to expand its presence and increase its retail and SME portfolio significantly, ensuring these sectors contribute meaningfully to their overall growth.
The bank’s journey aims for a seamless blend of technology and customer-centricity, creating lasting value for all stakeholders involved.
