Kazi Zahidul Hasan :
Banking experts on Thursday expressed serious concern over a growing trend of connecting lending among the sponsors of banks saying that such practice might spread a contagion across the financial system.
As risk associated with connected lending, they said, it should be stopped immediately to save the banks from future shocks.
The amount of connected lending stood at Tk 1,05,000 core as on June 31 this year, according to a Bangladesh Bank (BB) figure.
The BB figure shows, the country’s commercial banks have altogether disbursed Tk 731,000 crore loans as on June this year, showing a 14.22 per cent connected lending.
The amount of connected lending hit at Tk 100,000 core as on June 31 last year.
“Insiders loans under mutual arrangement among the promoters and directors of different banks pose a serious threat to banking industry. BB should ensure transparency in connecting lending by bank sponsors to their verticals,” Dr AB Mirza Azizul Islam, former finance adviser to the caretaker government, told The New Nation yesterday.
“Risk associated with connected lending. So, it should be stopped,” he said, adding, “It would increase banks’ asset liability gap, raise their defaulted amount and even lead to increase toxic assets.”
He further said that connected lending is also harming interest of the depositors. “Sponsor directors of the private banks have largely been involved in ‘connecting lending,’ making them financially insolvent as a result of big cash out,” Dr Salehuddin Ahmed, former Bangladesh Bank (BB) Governor told The New Nation.
He said, “Such a lending practice demands an extensive scrutiny from the central bank, but the banking regulator is yet to come out with the move, creating an uncertainty over the banking sector”.
The former BB Governor asked the central bank authorities to formulate a certain guideline so that banks should not grant any loan, advance or non-fund-based facility or any other financial accommodation to its directors or their relatives. “It is key to uphold the interest of shareholders and depositors,” he added.
When asked, a senior executive of a private commercial bank told The New Nation that they are frequently granting loans to the directors under pressure and even their directors are issuing instructions to grant loans to the directors of other banks, their subsidiary or the holding companies forming an unholy nexus with them.
“This practice leads to a potential pitfall in the banking sectors as we are not sure the amount we grant as connected lending may not come back to the vaults of the bank again,” he said asking not to be named.
Now 57 banks (public and private) are operating in Bangladesh having about 1000 sponsors directors. But only 50 directors of private banks are involved in insider lending, said a highly competent source in the central bank.
“These powerful directors having political affiliation held hostage the whole banking sector,” he added.
The BB figure show that National Bank Limited tops the list of connected lending granting Tk 6,788 crore to the bank directors followed by Exim Bank Tk 5,466 crore, Jamuna Bank 4,769 crore, Dhaka Bank Tk 4,647 crore, Shahjalal Islami Bank Tk 4,137, Bank Asia Tk 4,043 crore, Pubali Bank 3,671 crore, AB Bank Tk 3,670, UCBL Tk 3,504 crore, MTBL Tk 3,082 crore, Prime Bank Tk 3,040 crore, DBBL Tk 2,721 crore, Brac Bank Tk 2,142 crore, Premier Bank Tk 2,023 crore and IFIC Bank Tk 2,005 crore.
“Banks should not grant loans, advances or non-fund based facilities to its directors or their relatives and also to firms in which directors have interests to maintain their financial stability,” Dr Khondoker Ibrahim Khaled, former BB Deputy Governor told The New Nation.
He said, “In a bid to impart transparency and mitigate risks in the operation of banks, the central bank should closely monitor the issue. Otherwise, banks will face a serious crisis as result of big cash out”.
