Banks clocked higher operating profit in 2021 mainly due to the Bangladesh Bank’s relaxed policy that allowed them to count income from unrealised instalments of loans. Thus, they appear to have attained high profits even amid the pandemic-led crisis, but negative cash flow reflects their profits exist only on papers with no real income. The adoption of such an approach due the relaxed policy will have some negative impacts on banks. An analysis of operating profits of 22 banks showed all of the lenders except one posted higher profit in 2021 compared to a year ago, say bankers. Economists, however, warned that the forbearance offered by the central bank helped the lenders enjoy the high operating profit but this would not bring any good to the banking sector as a whole. Rather, it will weaken the financial health of banks in the long run.
Moreover, as per the central bank policy, banks were not allowed to treat borrowers as defaulters if they repaid only 15 per cent of their total payable instalments. Rather, banks were permitted to transfer the unrealised interests on 85 per cent of the loans instalments to their income book, although the sums were not paid. As a result, businesses, shareholders and directors of banks would get higher returns. But the relaxation will not give anything to depositors. Banks calculated the amount by anticipating that the fund would be realised in 2022. But as there has not been actual profit this time for many lenders, the gap will have to be met by the cash available that largely comes from depositors.
We learnt that the high operating profits logged by the banks were just inflated figures, which should be treated as “eyewash”. This has camouflaged the actual state of the banking sector as the majority of banks have registered the profit by using the central bank’s relaxed policy. Sadly, Bangladesh also meets almost all the requirements necessary to make it a perfect place of large-scale money laundering. It has mostly been happening because the perpetrators of the crime have usually been “tied to the power structure” and hence have often “determined the terms” that have allowed them to get away with it. We want all such shady activities to stop once and for all to restore discipline in the banking sector.
