AS per news media most of the banks listed with the stock exchanges registered a profit fall in January-March compared with the same period in the previous year. Bankers have blamed a huge amount of classified loans for the overall downtrend in the banking sectors. Banks must keep 100 per cent provision against their classified loans which have led to declines in its profit margin. The central bank was flexible in giving the directives but now has strictly directed the banks to obey the rules amid the growing trend of classified loans that threaten the depositors’ interest.
The colossal amount of classified loans eventually ruined banks’ profitability as they lose hope of gaining the amounts back. The banks have been facing liquidity shortage from the very beginning of the year. The critics observe that lack of governance, monitoring, political influence, and proper regulatory policy are the main reasons behind the sudden liquidity crunch. This led to the fall in comprehensive profit of 18 out of listed 29 banks in the January-March quarter of 2018 as shown in their reports, compared with the same period of 2017, while 10 banks reported higher earnings reports. The government in April, without taking any measures against the defaulters and concerned bankers, decided to help the banks by instituting a cut in cash reserve ratio of banks and repo rate and an increase in the limit of funds that the state-owned agencies could deposit with the private banks.
At present Bangladesh Bank is not being able to exercise its power on state-owned banks. Classified loans are increasing for this reason by leaps and bounds. Currently there are 34 per cent classified loans in state-owned banks while it is 6 per cent in private banks. The central bank right now has no authority to dictate state-run banks. The power to regulate state-owned banks should be handed over to Bangladesh Bank to reduce classified loans.
Due to the soaring classified loans by big defaulters, the profit margin of many commercial banks is shrinking. It would ultimately decrease new job creation and put those who are already employed at risk of losing their jobs. The overall economy is not healthy following banking sector scams one after another by those who have links to the ruling party.
