Abu Sazzad :
The amount of classified industrial loan stood at Tk 20,302.39 crore in the first quarter (July-September) of the current fiscal 2015-16. The amount was Tk 18,608.33 crore during the corresponding period of the last fiscal 2014-15.The default industrial loan rose by 9.10 per cent, according to the latest data of Bangladesh Bank.
Indiscriminate loan disbursement by the financial institutions resulted in soaring outstanding credit in the industrial sector, said Centre for Policy Dialogue (CPD) Executive Director Mustafizur Rahman to The New Nation.
The industrial sector faced a major setback in last financial year due to political violence that fuelled the defaulted loans in the sector, also pointed the CPD Director. The country witnessed political unrest in the third quarter of the FY15 that ultimately put an adverse impact on the industrial loan situation, he said adding that political turmoil in 2013 and 2014 had also put a long-term effect on business sector, he also claimed.
Actually, a good number of businessmen failed to repay their Equal Monthly Installment (EMI) due to poor business environment during the period of political turmoil.
“Of course, there was question about the disbursement process of the financial institutions The classified loans in the industrial sector increased in the first quarter as banks did not disburse the loans to the proper clients”, he said.
The central bank should speed up its monitoring process to ensure the quality of loan disbursement, otherwise the defaulted loans will increase further, he mentioned.
Banks’ financial health will be vulnerable due to an increase in non-performing loan, which will weaken the corporate governance, Mustafizur Rahman opined.
Most of the commercial banks have recently reduced the lending rate of industrial loan with a view to providing easy financial access to businesses. “It is good news for our economy that now maximum banks are offering between 13-15 per cent interest for industrial loan which was 18-19 per cent”, said Bangladesh Bank Deputy Governor Nazneen Sultana.
Bangladesh Bank has been encouraging private commercial banks to reduce the lending rate of industrial loan to achieve GDP growth target by increasing inflow of credit to the productive sector, she said.
In the last fiscal, industrial term loan substantially declined due to prolonged political unrest, simultaneously private sector credit growth dropped significantly. Talking on classified loan, the deputy governor said, already the central bank has installed large loan monitoring software. She hoped that the classified industrial loan will decline in future due to the policy measure of Bangladesh Bank.
The liquidity position in the banking sector is now satisfactory. So the higher interest rate for the industrial loan is not desirable. ‘It is important to decrease the rate of interest of industrial loans to achieve the desired GDP growth,’ said BB Deputy Governor.
The central bank already asked banks to strengthen their risk management to check the classified loan. Recently, the central bank issued a circular in this regard. Schedule banks will face penalty if they fail to manage their risks properly as per the central bank’s guidelines, she said.
The banks will be punished if they fail to execute their own risk management related activities including limit setting as per customer’s ability, said the deputy governor.
The circular contains a set of instructions to be followed by banks for strengthening their risk management with immediate effects. Bangladesh Bank has also asked all the schedule banks to adopt a separate set of officials for the risk management division, appointing efficient manpower. As per the new rule, all the banks will have to appoint a Chief Risk Officer (CRO) equivalent to Assistant Managing Directors or Deputy Managing Director.
An officer with the rank of Executive Vice- President or Vice-President will be appointed as the head of risk management division, she said. The risk management division will set a limit of taking risk for the respective banks on annual basis, she also added.
Association of Bankers, Bangladesh (ABB) President and Managing Director of Eastern Bank Ltd, Ali Reza Iftekhar said, the default loan is the key challenge for the banking sector. “We have to take initiative to reduce the non-performing loans at any cost as the classified loans will foil the capacity and reputation of a bank,” said the ABB President.
The reduction of industrial term may decrease the non-performing loan from the banking sector, but this is not the solution, pointed the ABB President. “Industrial loan is very important to expand industrialization process in the country, so the credit analysts of the banks have to be cautious to set the credit limit in favor of the industrialists”, said the ABB President.
Financial institutions disbursed industrial loans amounting to Tk 53,984.70 crore in the first quarter of the current fiscal against Tk 52,044.29 crore during the same period of the last fiscal, according to central bank data.
The amount of classified industrial loan stood at Tk 20,302.39 crore in the first quarter (July-September) of the current fiscal 2015-16. The amount was Tk 18,608.33 crore during the corresponding period of the last fiscal 2014-15.The default industrial loan rose by 9.10 per cent, according to the latest data of Bangladesh Bank.
Indiscriminate loan disbursement by the financial institutions resulted in soaring outstanding credit in the industrial sector, said Centre for Policy Dialogue (CPD) Executive Director Mustafizur Rahman to The New Nation.
The industrial sector faced a major setback in last financial year due to political violence that fuelled the defaulted loans in the sector, also pointed the CPD Director. The country witnessed political unrest in the third quarter of the FY15 that ultimately put an adverse impact on the industrial loan situation, he said adding that political turmoil in 2013 and 2014 had also put a long-term effect on business sector, he also claimed.
Actually, a good number of businessmen failed to repay their Equal Monthly Installment (EMI) due to poor business environment during the period of political turmoil.
“Of course, there was question about the disbursement process of the financial institutions The classified loans in the industrial sector increased in the first quarter as banks did not disburse the loans to the proper clients”, he said.
The central bank should speed up its monitoring process to ensure the quality of loan disbursement, otherwise the defaulted loans will increase further, he mentioned.
Banks’ financial health will be vulnerable due to an increase in non-performing loan, which will weaken the corporate governance, Mustafizur Rahman opined.
Most of the commercial banks have recently reduced the lending rate of industrial loan with a view to providing easy financial access to businesses. “It is good news for our economy that now maximum banks are offering between 13-15 per cent interest for industrial loan which was 18-19 per cent”, said Bangladesh Bank Deputy Governor Nazneen Sultana.
Bangladesh Bank has been encouraging private commercial banks to reduce the lending rate of industrial loan to achieve GDP growth target by increasing inflow of credit to the productive sector, she said.
In the last fiscal, industrial term loan substantially declined due to prolonged political unrest, simultaneously private sector credit growth dropped significantly. Talking on classified loan, the deputy governor said, already the central bank has installed large loan monitoring software. She hoped that the classified industrial loan will decline in future due to the policy measure of Bangladesh Bank.
The liquidity position in the banking sector is now satisfactory. So the higher interest rate for the industrial loan is not desirable. ‘It is important to decrease the rate of interest of industrial loans to achieve the desired GDP growth,’ said BB Deputy Governor.
The central bank already asked banks to strengthen their risk management to check the classified loan. Recently, the central bank issued a circular in this regard. Schedule banks will face penalty if they fail to manage their risks properly as per the central bank’s guidelines, she said.
The banks will be punished if they fail to execute their own risk management related activities including limit setting as per customer’s ability, said the deputy governor.
The circular contains a set of instructions to be followed by banks for strengthening their risk management with immediate effects. Bangladesh Bank has also asked all the schedule banks to adopt a separate set of officials for the risk management division, appointing efficient manpower. As per the new rule, all the banks will have to appoint a Chief Risk Officer (CRO) equivalent to Assistant Managing Directors or Deputy Managing Director.
An officer with the rank of Executive Vice- President or Vice-President will be appointed as the head of risk management division, she said. The risk management division will set a limit of taking risk for the respective banks on annual basis, she also added.
Association of Bankers, Bangladesh (ABB) President and Managing Director of Eastern Bank Ltd, Ali Reza Iftekhar said, the default loan is the key challenge for the banking sector. “We have to take initiative to reduce the non-performing loans at any cost as the classified loans will foil the capacity and reputation of a bank,” said the ABB President.
The reduction of industrial term may decrease the non-performing loan from the banking sector, but this is not the solution, pointed the ABB President. “Industrial loan is very important to expand industrialization process in the country, so the credit analysts of the banks have to be cautious to set the credit limit in favor of the industrialists”, said the ABB President.
Financial institutions disbursed industrial loans amounting to Tk 53,984.70 crore in the first quarter of the current fiscal against Tk 52,044.29 crore during the same period of the last fiscal, according to central bank data.
