Bringing discipline in the banking sector  

Shahiduzzaman Khan         | Published: June 23, 2018 22:08:06 | Updated: June 24, 2018 22:09:44


The classified loans of the state-owned commercial banks (SoCBs) continue to soar. It is so high that these are now failing to keep the required provisions against both classified and unclassified loans.

The overall shortfall in provisions against classified and unclassified loans in the country's banking system jumped by nearly 24 per cent or Tk 12.97 billion in the last calendar year, according to reports. Some banks ran short on the provisions following higher classified loans along with conditional rescheduling of outstanding credits.

According to the latest central bank data, the volume of default loans in the banking sector is now Tk 800 billion. Such default loans of Agrani, Rupali, Sonali, Janata, BASIC, Bangladesh Krishi, Rajshahi Krishi Unnayan and Bangladesh Development Bank stood at Tk 491.12 billion at the end of March this year, up 14.88 per cent from the previous quarter.

Of the eight SoCBs, Sonali had the highest amount of default loans at the end of March: Tk 143.05 billion. It was followed by Janata and Agrani: Tk 970.2 billion and Tk 567.6 nillion respectively. Rupali came in next with its default loans amounting to Tk 460.3 billion.

The state-run banks allegedly sanction a huge amount of the loans even after knowing that those loans would become classified. Many bank officials got involved in major irregularities while sanctioning those loans. This looks like embezzlement in broad daylight.

Once the loans becaome default, the banks usually conceal it by means of rescheduling and restructuring. Analysts are of the opinion that the culture of loan indiscipline at the state owned banks is due to incompetence of some bank officials who were appointed and promoted to higher positions on political considerations.

Instead of taking measures to solve the default loan problems, the government keeps on allocating funds for the banks from the state coffer to make up for their capital shortfall, defying normal practice.

Some legal loopholes were identified as the major reasons why bank-loan defaulters go unscathed in most cases. Among 600 cases, the court issued order asking the banks concerned not to show the credit status of the borrowers though the central bank's Credit Information Bureau (CIB) had identified them as defaulters.

The defaulters take the advantage of stay orders from the court due to the weaknesses in the relevant laws. Courts even issue order asking the banks not to show the accused borrowers as 'defaulters'.

What is worrying is that some top defaulters could secure more loans, mostly from private banks. Even after so much discussion on default loans in various forums, not enough actions were taken to contain it. The companies are taken over or even liquidated in many countries of the world in case of such defaults.

Enactment of an effective law is a dire necessity so that the assets of the bank loan defaulters could be confiscated to make payments to the lenders. In Bangladesh, there is a culture of bailing out the borrowers in difficulty. But the default loans cannot be recovered as the defaulters resort to various tactics to dodge repayment to banks.

There are instances that only a particular company could manage loans from 13 banks at the same time. Allegations have it that some borrowers use the same collateral to obtain loans from several banks simultaneously. In such cases, a defaulting company's assets should be seized or it needs to be shut down. But unfortunately, this is not happening in Bangladesh.

Analysts say there are no loopholes in the existing laws that deal with the defaulters. The Artho Rin Adalot (Money loan court) and the Bank Company Act can effectively deal with default loans. In fact, the problem lies with their enforcement of the laws. An appeal for forming a dedicated bench in the court for quick disposal of such cases was never implemented.

Many banks maintain more provisions against their conditional rescheduling of loans. A large amount of non-performing loans (NPLs) were, however, rescheduled on some conditions set by the central bank to minimise risks. Such rescheduled credits were treated as unclassified ones, but the banks were asked to maintain provisions in accordance with previous status of the loans. A portion of rescheduled loans has already turned into classified ones again that also pushed up the volume of provisioning shortfall.

What the banks should do is to reduce their volume of default loans through boosting their recovery drives to improve their financial health. The banks normally keep requisite provisions against their unclassified and NPLs from their operating profits in a bid to mitigate financial risks.

However, the NPL issue is one of the major causes that has stagnated the economic activities by affecting investors' confidence over the banking arena. Recently, a series of scams has thrown the banking system in jeopardy.

In 2010, Bangladesh Shilpa Bank (BSB) and Bangladesh Shilpa Rin Sangstha (BSRS) were merged due to huge amount of NPL accrued to both of them. The operational activities of BSRS came to a halt, when its classified loans reached up to 85 to 90 per cent of its total portfolio.

Analysts say, the central bank should give a strict timeframe to the banks to recover the amount from the scammers. The defaulters should not be allowed to reschedule or restructure the loans if they fail to recover the amount within the period.

In order to get rid of the huge amount of NPL in the banking sector, some experts stressed the need for developing an inbuilt capacity in banks to expedite the loan recovery process. Some lawmakers proposed enactment of a new law by removing the weaknesses of the existing ones. They suggested formation of a committee of experts for drafting an appropriate law.

Many, however, differ with the lawmakers' proposal. They say the formation a dedicated bench in the High Court will better settle the loan-default cases. As another option, the banks may consider appointment of loan recovery agents.

What the government should do is to stop recapitalising the problem banks as it has not brought any improvement in their financial health. The banks should be forbidden from sanctioning fresh loans to habitual defaulters.

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