Presentation on
Non-Performing Loan
Presented by
Team NPL
ID 21306065-21306074 (Group F)
Department of Banking and Insurance
University of Chittagong
Presented to
Rubayet Hasan
Assistant Professor
Department of Banking and Insurance
University of Chittagong
 Introduction

Classification of NPLs

Table of Contents
Provisions for NPLs

Management of NPLs

Loan Rescheduling
 Introduction

Speakers
Junayed Ur Reza (21306065)

Anonto tripura Parcy (21306066)

 Introduction to Non-performing Loan
Non-performing loans (NPLs), commonly referred to as bad loans or
non-performing assets (NPAs), are a crucial topic in the banking and
financial industries.

Non-performing loans are those that no longer generate interest

income for the lender because the borrower has stopped
making payments or is making irregular, insufficient payments.
NPL causes due to the following reasons:

Economic downturn

Financial distress of borrower

Mismanagement of funds

Change in borrower financial circumstances

Classifications of Non-performing Loan

Speakers
Maya Khanom (21306067)

Md.Atik Hossain (21306068)

Non-Performing loan
Non-performing Loan
If a bank fails to collect the interest
payments or the principal amount, then
that loan is considered a non-performing
loan.
An eight-tier system for classifying loans has been well-
defined by Bangladesh Bank and that system includes

Superior Good Special Mention Acceptable

Marginal Sub-Standard Doubtful(DF) Bad/loss(BL)

Non-performing Loan (cont’d)

There are three types of loans in Non-performing loans.

Types

Sub-standard (SS) Doubtful (DF) Bad/Loss (BL)

 Non-performing Loan (cont’d)
Substandard loans
In the instance of loans not being repaid for three months or 90 days
after the maturity by the borrowers, the loans are categorized as
substandard loans.
Doubtful loans (DF)
When the loans are not refunded by the borrowers for six months that’s
means which equates to 180 days after the maturity date the loans are
categorized as doubtful loans.

Bad/Loss
When a loan is not paid up to nine months which means equal to 270
days after the maturity of the loan then it is categorized to be Bad/Loss
and assets must be categorized as no higher than Bad/Loss in the
circumstances
 Guidelines of Bangladesh Bank regarding NPL
Loan classification
All loans and advances are categorized into four groups

Loans Classifications

Continuous Loan Demand Loan Fixed-term Loan Short-term

Agricultural and
Micro Credit
Loan classification
Continuous Loan

Continuous loan is the loan account where transactions may need to

be within a predetermined limit and there may have a date to be
expired for example: Overdraft, Cash Credit etc.
Demand Loan

Demand Loan is a loan which has turned into a forced loan from
any contingent liability. In other words demand loan is a loan which
is payable on demand by the bank. For example: Foreign bill
purchased, Forced Loan against Imported Merchandise etc.
Loan classification
Fixed-term Loan:

Fixed term Loan is generally repayable under a specified term

schedule and within a specified time period

Short-term Agricultural and Micro Credit

Short term Agricultural and Micro Credit: Credit in the Agricultural

and Microcredit are generally repayable within less than twelve
months and this category includes any micro-credits less than
25000 tk.
Provisioning of non-performing loans

Speakers
Tanima Jahan Hafsa (21306069)

Kazi Muhaiminul Islam Munaj (21306070)

Provisioning of non-performing loans

When the bank sets aside a prescribed amount of

money from their profit to compensate for probable
loss ,calls provisioning of non-performing loans
Provisioning of non-performing loans

Purpose

Reflecting the potential risk and financial impact of these loans on

the bank's balance sheet.
Provisioning of non-performing loans
Benefits
Estimation
Estimating the provision amount, considering factors like
historical loss rates, economic conditions, and specific loan
characteristics.
Impact on profitability
Provisioning for NPLs is recorded as an expense on the bank's
income statement, reducing its reported profitability.
Provisioning of non-performing loans
Benefits
Risk Management
Provisioning helps banks manage risk by preparing for
potential losses and ensuring they have adequate capital to
absorb those losses.
Potential Measurements
If NPLs improve or are recovered in the future, provisions may
be reversed, improving the bank's financial position.
Provisioning of non-performing loans
Benefits
Disclosure
Banks typically disclose their NPL provisions in their financial
statements to provide transparency to stakeholders.

Proper lending practices

High levels of NPLs and provisions can affect a bank's ability to
lend and may lead to more conservative lending practices.
Minimum Provision Requirement

Loans Required Provision (as a % of outstanding loan)

1% 50% 20% 100%

Unclassified Substandard Doubtful Bad/Loss

Loans Required Provision

 Loan Rescheduling

Speakers
Khaled Mahmud Onik (21306072)

Amena Rahman (21306074)

Loan Rescheduling
Loan Rescheduling is using a new loan to replace the
outstanding balance on an older loan. The new loan
is typically paid over a much longer period with a
lower installment. Loan rescheduling is mainly used
to avoid default from consumers.
Why loan rescheduling may not be ideal for you?
Why loan rescheduling may not be ideal for you?

High long term cost Vicious Debt Cycle

High Fees Economic downturn

This loan becomes an unpredictable bomb
which may explode at any time.

Consumers may not be able to afford

Making informed decisions

Non-performing loans (NPLs) management

Speakers
Shad Hamid(21306071)

Nasrin Sathi (21306073)

Non-performing loans (NPLs) management

Effective NPL management is crucial for maintaining the financial

health and stability of a financial institution.
Key aspects of NPL management
Identification
portfolio reviews and classification of loans as performing or non-
performing based on predefined criteria, often related to the
number of missed payments or the borrower's financial health

Risk Assessment

Assess the risk associated with each NPL. This includes evaluating
the likelihood of recovering the loan, potential collateral value, and
any legal or regulatory issues.
Key aspects of NPL management
Loan
Identification
Workout Strategies:
Implement various strategies to recover NPLs, such as restructuring
the loan terms, renegotiating payment schedules, or selling the loan
to a debt collection agency or asset management company.

Risk
Collateral
Assessment
Management

If the loan is secured by collateral, assess and manage the

collateral to maximize recovery. This may involve selling the
collateral or taking legal action to seize
Key aspects of NPL management
Legal Action

It may be necessary to take legal action against the borrower to

recover the NPL. This could involve filing a lawsuit, obtaining judgments,
and using legal remedies to seize assets or enforce repayment.

Provisioning

Financial institutions are typically required to set aside provisions or

reserves to cover potential losses from NPLs
 Key aspects of NPL management
Monitoring and Reporting

Continuously monitor the progress of NPL recovery efforts and maintain

accurate records. Regulatory authorities often require financial
institutions to report NPL data regularly

Recovery Rate Analysis

Analyze historical data to determine the average recovery rate for

different types of NPL,s
 Key aspects of NPL management
Regulatory Compliance

Ensure compliance with all relevant banking and financial

regulations regarding NPL management and reporting.

Staff Training

Provide training to staff involved in NPL management to ensure they

are well-equipped to handle these situations effectively and
ethically
Key aspects of NPL management
Customer Communication
Maintain open and transparent communication with borrowers
to explore repayment options and avoid a rise to legal action
whenever possible
 Why NPL management is essential

Effective non-performing loans management is essential for

financial stability and profitability for banks and financial
institutions.
It requires a combination of financial expertise, legal knowledge,
and effective communication skills to lessen the complexities of
recovering bad loans.