The news that two more new banks are about to be established is quite disconcerting. In 2012, the government approved nine new banks. Most directors and chairmen of those banks have direct or indirect connections with the ruling party or its allies. Experience and qualifications of the sponsors concerned were hardly taken into consideration while approving the new banks. As a result, defaulted loans, administrative cost and corruption are on the rise in these banks. On the other hand, there were some instances of contravention of the rules of the Bangladesh Bank (BB). At least a couple of new banks have got strictures from the regulator.
Is there any need for new banks in the country? In 2011, a study by the central bank found that the number of active scheduled banks is larger than what our economy requires. So, in this limited market, there is an unhealthy competition among a large number of banks. Due to this intense competition, not only the main sources of the banks are shrinking but also they are giving attention to some off-balance-sheet programmes, which impedes the expansion of the banking sector. With much reluctance, the Bangladesh Bank had to give approval to nine new banks some years back.
According to Section 31 of the Banking Companies Act, 1991, the Bangladesh Bank (BB) has the authority to issue licenses to banks. Earlier, according to the Bangladesh Bank Order 1972, the government could give directions on the basis of other directives that have been referred to in the order. After the withdrawal of the order in 2003, the authority to issue license to a bank is fully vested in the central bank.
As many as 39 commercial banks in the private sector continue to operate now. Nine of these were approved in 2012 on political consideration. This year too 'Shimanto Bank' has been approved to provide financial services to the paramilitary Border Guard Bangladesh (BGB) in the manner of the Trust Bank. As a result, with state-owned six, specialised two, overseas nine, the number of scheduled banks stands at 57. There are also the Grameen Bank, the Ansar-VDP Bank, the Karmasangsthan Bank, the Probashi Kallyan Bank and 32 non-banking financial institutions.
The nine new banks that got permission include Farmers Bank, Union Bank, NRB Bank, NRB Commercial Bank, NRB Global Bank, South Bangla Agricultural Bank, Meghna Bank, Midland Bank and Modhumoti Bank. A few of these banks are in a healthy state. Defaulted loans in the newly-established banks increased to Tk 5.61 billion as of September 30, 2016, from Tk 444.4 million as of December 31, 2015, as the banks disbursed loans aggressively violating the central bank rules. The amount of default loans of 39 private banks increased to Tk 235.7 billion at the end of 2016, from Tk 207.6 billion in 2015. Even default loans of nine foreign banks rose to Tk 24.05 billion in late 2016, which was Tk 18.97 billion a year before. On the other hand, Sonali Bank, Rupali Bank, Janata Bank, Agrani Bank, Basic and Bangladesh Development Bank were burdened with an aggregate amount of default loans at Tk 312.5 billion in December 2016 as against Tk 237.45 billion in 2015.
Almost half of 294 branches of nine newly established scheduled banks are making losses as the defaulted loans in the banks have been rising. According to the latest Bangladesh Bank data, 141 branches of the nine banks were found to be making losses as of June 30, 2016
The nine new banks are also lagging behind the banks of the previous three generations on account of their lower deposit mobilisation and credit disbursement compared to the older banks. The BB data show that a substantial number branches of these banks have been incurring losses.
The survey of the Bangladesh Institute of Bank Management (BIBM) reveals that 75 per cent bankers are in favour of opening new branches of the existing banks as 92 per cent customers of banks want the same. As high as 95 per cent bankers are against establishing new banks and among the clients 55 per cent hold the same view.
Under these circumstances, it is evident that there is no need for new banks in Bangladesh. Clients can be served well by new branches of the existing banks. As there is an intense competition among banks, new and a variety of products should be launched by them to provide better customer service. Meanwhile, the banks have reduced the rates of interest on deposits in order to make up for the 'losses' caused by non-repayment of loans; the current interest rate is lower than the rate of inflation at about 6.0 per cent.
Clients are apparently happy with the existing quality of service of banks and they get their required loans within the shortest period of time. However, BB governor Fazle Kabir has make public a report on client harassment prepared for the 2015-16 fiscal year. According to the report, a total of 4,530 clients of the country's 48 banks filed formal complaints of financial irregularities and client harassment over the year. As many as 563 clients have complained against the Sonali Bank while 373 clients expressed their dissatisfaction with the BRAC Bank. Around 56.7 per cent of the complaints were made by clients of private banks and the rest were against the state-owned banks.
To reduce complaints, bankers should act together with the aim to serve the clients. Weak banks can be merged with the financially strong ones to cope with the current competition. Banks should disburse loans on simple conditions and at lower rates of interest. The banking system must be made easier to the rural, uneducated people because they are the largest in number. After all, the customer is the king and the king must be made happy at the end of the day.
The writer works at Karwan Bazar Branch of Standard Bank Limited.