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Rewriting banks' risk rules crucial, analysts tell BIBM discussion

FE REPORT | Thursday, 16 July 2020


Traditional risk assessment, management and mitigation factors will be changed in the pandemic situation and dangers should be assessed in a new way, bankers and academics said on Wednesday.

They said the country's banks will pass the year in good performance, helped by stimulus packages and other assistance from the government, but 2021 will be a tough year for banking sector.

The bankers said there will be an increasing amount of non-performing loans(NPLs) after the pandemic as willful defaulters utilise an opportunity not to pay back and there is no way to check them as well.

They also feared that stimulus packages might worsen the NPL situation if loans aren't disbursed efficiently under packages.

The perspectives came at a virtual discussion on "Risk Management in Banks amid the Covid-19 Pandemic: Bangladesh Perspective," organised by the Bangladesh Institute of Bank Management or BIBM.

Trust Bank managing director Faruq Mainuddin Ahmed said risk management in banks has to be changed in the pandemic situation.

He said, "We couldn't do anything about willful defaulters during pre-Covid time. They are very much in the society and in the banking community and we will not able to stop them during and after Covid."

"If we can't stop willful defaulters during pre-Covid time how will we stop them after Covid?" he said.

So we have to rewrite the risk literature again in this connection," he said.

He wondered whether the banking sector was paving the way for another 'Hari loot' ( plunder) in the name of stimulus package.

He said if big conglomerates take out loan under the stimulus package from banks, there is no mechanism to understand whether they are over-financed. "It will worsen the existing bad loan culture further," he said.

He said smaller enterprises require the funds in this pandemic situation most, but push from large borrowers will deprive them of meeting their needs.

"We can't defy the pressure from large conglomerates that need the fund the least," he said adding that smaller firms can't get to banks withstanding that kind of pressure.

He said it is not time to increase the profit during the pandemic, it is time to survive avoiding loss. Bangladesh Krishi bank managing director Ali Hossain Prodhania said risk assessment parameters will be entirely changed during and after the Covid pandemic.

He said there will not be any problem for liquidity in the banks in 2020, but the situation may get acute next year.

He said credit risk is mostly un-assessable now in the pandemic situation.

"Good governance is a must for banks," he said.

Shahjalal Islami Bank managing director Muhammed Shahidul Islam said the risk of Shariah-based is graver and more challenging in the pandemic situation as they can't adjust deal or profit for the extension of term by the central bank.

He said their old risk assessment plans aren't working in the pandemic situation.

"We are formulating a new plan keeping in mind the pandemic risk and challenges, so that this plan can work if the pandemic returns after one year," he said.

He said banks will pass the 2020 in good performance, but 2021 will be a challenging year for banking. BIBM professor DrBarkat-e-Khuda said if oil price doesn't increase, remittance income is unlikely to rise.

He said special health recovery plan needed in the country to overcome losses for Covid keeping the existing five year plan on hold.

He said the 'new normal' will be completely different and there is no clear idea about it now.

Former supernumerary professor of BIBM Helal Ahmed Chowdhury said banks' management and the board must listen to the credit risks department before disbursing loans under the stimulus package.

He said all banks need to work in a holistic approach to reduce risks while implementing the stimulus package.

Professor and director of BIBM Dr. Shah Mohammad Ahsan Habib said regulatory backlash will be costlier for banks if the lenders do not comply with the regulator's expectations now in the pandemic situation.

He said meeting the regulatory expectations and national priority is expensive, but non-compliance will cost the banks dearly.

Prof. Habib said the extensive involvement of the board in the decision making process will reduce the risk in emergency situations.

Director of BIBM Dr. Prashanta Kumar Banerjee said issuing bonds and developing bond market will ensure fund generation in the economy.

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