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Default bank loans: A potential time bomb

Syed Ashraf Ali | Published: March 12, 2019 21:03:46 | Updated: March 12, 2019 22:08:48


We cannot find a better set of words to describe the present state of Bangladesh economy than by borrowing, albeit with a slight variation, a line or two from Charles Dickens' classic, A Tale of Two Cities -- it is the best of times, it is the worst of times, it is the age of wisdom, it is the age of foolishness………

Why it is the best of time is pretty obvious. Bangladesh economy scored an uninterrupted growth of around 6.0 per cent per annum over the last ten years coinciding with the tenure of the present government. The pace of growth accelerated to over 7.0 per cent per annum over the last three years. According to the United Nations Conference on Trade and Development (UNCTAD), Bangladesh was among only five countries out of 45 least developed countries that maintained the growth at that high level in 2017. Another good news floating in the air is that the London-based Centre for Economics and Business Research has calculated that Bangladesh economy is poised to become the 24th biggest world economy -- a big leap indeed from its current 41st mark and, needless to say, a quantum leap from the 'bottomless syndrome' predicted by Henry Kissinger.

Alongside its laudable accomplishments in the economic front, the Government has succeeded to silence the monsters of anti-liberation forces and burgeoning groups of terrorists who had raised their ugly heads to destabilise the country. It is no small wonder that the spirit of Bengali nationalism and liberation war has started to revive in the national psyche after a prolonged period of hibernation under the patronage of anti-liberation elements following the tragic assassination of Bangabandhu Sheikh Mujibur Rahman.

Unfortunately, despite these positive developments, we have quietly slipped into what Dickens called 'worst of time' due to mismanagement of the financial sector. The growing volume of non-performing loans has assumed the proportion of a time bomb threatening to destabilise the country's economy. The phenomenon can be likened to Achilles heel, the vulnerable spot of the otherwise invincible legendary Greek hero, Achilles that caused his downfall. In our context, the spectacular achievements of the present government are threatened to be undermined by the chaos in the financial sector, our own Achilles heel.

It is difficult to get a clear picture of nonperforming loans in the banking sector due to frequent change of the central bank's criteria for classification of loans. True picture of classified loans is also sometime camouflaged by doctoring the books of accounts, parking of bad loans to new accounts and frequent rescheduling, often with money borrowed from the same lending bank, for down payments in the name of third parties or sister concerns. Sometimes, legal embargo, by way of writ petitions, is also obtained by the borrowers to restrain the Bangladesh Bank -- surprisingly, often at the behest of the affected banks themselves -- from classifying even the stinking bad loans. This means banks are covertly carrying a large number of bad loans in their books as good loans through what can be said as 'life support programme'.

How bad is the big picture? As mentioned above, the real picture is blurred. The officially produced sugar-coated statistics nonetheless provide a frightening picture. According to Bangladesh bank data the amount of non-performing loan (NPL) stood at Tk 939.11 billion (93,911 crore) at the end of 2018, up from Tk 743.03 billion (74,303 crore) a year ago. The NPLs now account for 10.30 per cent of the banking sector's total loans, up from 9.31 per cent in 2017 in spite of rescheduling of Tk 191.20 billion (19,120 crore) in 2017.

Particularly worrying is the sharp increase of the classified loans of the SCBs (state-owned commercial banks) during the last few years. Classified loans in just six state-owned commercial banks -- Sonali, Agrani, Janata, Rupali, BASIC and Bangladesh Development Bank Limited -- increased to Tk 438.53 billion (43,853 crore) at the end of June 2018 from Tk 373.26 billion (37,326 crore) on December 31, 2017.

The scandal-ridden Sonali Bank leads the pack with more than one-third of its loan portfolio infected by potentially unrealisable classified loans. Agrani Bank and Rupali Bank do not lag far behind with nearly one-fourth of their portfolio heading for the cleaners. Janata Bank, which fancied itself as the best in Bangladesh (or is it Asia?), pampered two defaulting borrowers -- Annotex and Crescent -- which alone accounted for a king's ransom -- Tk 83.00 billion (8,300 crores). The non-performing loans have sunk the bank into loss of colossus amount of Tk 63.00 billion (6,300 crores) in 2018. Its classified loans have, in the meantime, skyrocketed from Tk 58.18 billion (5,818 crores) to Tk 172.24 billion (17, 224 crores) within the space of one year.

And, how about the Dickens' age of foolishness? An otherwise respected and honest Finance Minister, for some unexplained reasons, 'rubbished' anyone who tried to underscore the danger posed by loan scams involving Hallmark, BASIC Bank, Bismillah groups et el. His escapades earned censors even in the nation's Parliament.

The government ambivalence with regard to these scams not only undermined the health of the banks but spawned a new breed of rogue characters who merrily tinkered with bank money with impunity. One unfortunate offshoot of these scandals is that every time a scam is unearthed, the minnows in the banks' rank and file are made to bear the brunt and hauled to court or prison while the lynchpins behind these scams roam scot-free to enjoy the fruits of their misdeeds.

And a past central bank Governor, known for his erudition and scholarship but bereft of power to control the recalcitrant banks, focused his attention instead on relatively unimportant issues like green banking, school banking, road shows across the shores of Bay of Bengal in the barren landscape from Cox's Bazar to Teknaf in quest of borrowers. He relentlessly pursued an elusive goal of financial inclusion which fell flat on its face while the gap between the filthy urban rich and the rural poor continued to widen every passing day.

Another erroneous idea nurtured by the government is to provide handouts to the state-owned banks to keep them from sinking into bottomless abyss. In addition to huge amounts doled out sporadically to recapitalise the state-owned banks since 1990, in recent years -- 2011 to 2018 -- the amount spent straight out of the tax payers' pockets amounted to more than Tk 135.00 billion (13,500 crore).

The reasons for the chronic sickness of the SCBs are well-known. The remedies are routinely repeated in seminars, discussion forums and the media but these have routinely fallen in deaf ears. The entrenched interest groups are reluctant to slacken their strangleholds on these banks. They would repeatedly espouse the myths and fairy tales about their contribution to the rural communities to forestall any major reforms.

Some of the banks in the private sector are not paragon of good governance either. They are blamed for patronising a select group of clientele and their own peer belonging to what can be called 'mutual admiration society'. Notwithstanding these shortcomings, some of the banks in the private sector have shown a reasonable degree of dynamism to edge past the state-owned banks in terms of resource mobilisation, loan administration and adoption of advanced technology and client-friendly products.

However, a dozen or so banks, including half a dozen fourth generation banks, are hovering in the twilight zone of non-performing loans with potential to spark a catastrophe any time soon. Instead of tightening the noose around the scandal-ridden banks, the central bank, understandably at the behest of the government, have thrown in long ropes like frequent rescheduling of poor loans, change of credit deposit and statutory deposit ratios and resuscitating the dying Farmers Bank with money from gravely ill state-owned banks who are themselves living on charity from the tax payers.

Predictably, a Committee headed by Bangladesh Bank Deputy Governor has been set up to diagnose the illness and prescribe the remedy. A committee is humorously defined as a body that keeps minutes and wastes hours. The causes of illness and the remedies are already well-known and do not need a committee to attend to it all over again. What are needed is a strong political will and a realisation that banking system is not an inexhaustible gold mine to be leased to anyone for asking or cannibalising.

The Prime Minister has chosen jihad against corruption as her new mantra in her third term. She has the backing of a vast majority of people as demonstrated in the last general election. She has also the capacity to usher in what Dickens said 'the age of wisdom'. The nation waits to see her realise that dream.

The views expressed are of the author and do not necessarily represent those of the FE.

Syed Ashraf Ali is a former central banker, a columnist and author. saali.dhaka@gmail.com

 

 

 

 

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