DOHA: Credit monitoring teams of banks are having a tough time as doubtful and bad loans have been showing an alarming rise, particularly since the start of this year.
Qatar Central Bank (QCB) figures show that banks have to make a provisioning of QR7.8bn for bad and doubtful loans.
Provisioning means that banks have to set aside portions of their profits to cover for bad and doubtful debts, and this erodes their profitability.
The situation is so alarming that in April alone cheques worth a staggering QR500m that were submitted to banks to service loans, were dishonored due to insufficient funds in the bank accounts of those issuing the cheques.
A banking industry source said that considering the disturbing trend, banks could urge the government to amend the law and facilitate immediate arrest and trial of people who issued cheques that bounced.
"This would act as a deterrent because given the number of cheques that are dishonoured every month people do not seem to fear the law," said the source.
The provisioning by banks for non-performing and doubtful loans was only QR7.37bn in January this year.
This means that over the past five months alone bad and doubtful loans have risen by QR430m.
The QCB had earlier asked banks to set up internal panels to closely monitor their credit dispensation and how the loans they disbursed are serviced.
The move aimed at checking the default rate and keeping it at bare minimum.
The panels are required to periodically classify each credit account and assess the creditworthiness of a borrower, whether individual or a company.
Periodical reports are then forwarded to the QCB which keeps a close track of the credit situation of each bank. And at the end of each year, banks are supposed to submit final classification and creditworthiness of their borrowers.
One of the most challenging tasks of these internal panels of banks is to coordinate with the borrowers who are unable to repay a loan and mutually work out ways of how the debt can possibly be serviced.
As per QCB rules, a doubtful debt is one in respect of which monthly installments have not been paid for 180 days in a row, while a loan is termed bad when it is not serviced for a year.
© The Peninsula 2011
