THE International Monetary Fund (IMF) has severely criticized the government and the Bangladesh Bank in particular for repeated rescheduling of loans held by big corporate borrowers blaming the policy for creating crisis in the country’s banking sector. The IMF is asking the government to implement necessary reforms in the banking sector to get rid of the loans that are not recoverable and then to strengthen banks management with adequate supervision and accountability authorities so that such things can’t happen again. It goes without saying that such rescheduling only shows artificial improvement in the banks’ balance sheet without the money while severely affecting profits.
The lower profit then pushes banks to charge higher interest on loans for investment to set up new business and this in turn is seriously pulling back the economy by slowing down job creation and income generation activities. This is the cobweb of the artificial rescheduling of loans while the banking sector is having a total stuck up loan of over Tk 54,657 crore from 56 banks as of June 2015 and half of it from state owned banks (SOBs). The loan stuckup in private banks rest with major bank directors and their business.
The IMF’s concerns were reported by The New Nation on Monday while Finance Minister AMA Muhith also divulged the amount of huge defaulted loans in parliament on the previous day however without referring to its impact on the economy. The fact is that while some defaulting cases may be genuine, the government is allowing the rescheduling to most of them mainly on political consideration because most of those defaulters are party men or close to the ruling party contributing to party funds and helping it to stay in power.
Meanwhile, banks are target of swindling by powerful people and as per news reports over Tk 12,000 crore were removed from the SOBs in the recent past; including Tk 3,500 crore by a single business house from Sonali Bank using fake trade documents. BASIC Bank chairman was instrumental to removing Tk 4,500 crore in fake business loans but surprisingly the anti-graft body does not see his involvement. However these loans are added to default loans making the balance sheet unnecessarily hefty while the government also does not see the chance of recovery of most of these stuckup loans. Meanwhile the government is allowing most of the SOBs to operate with budgetary recapitalization with tax payers money.
What the IMF is saying is that such artificial balance sheet is tantamount to misleading the nation and banks therefore needs reforms to clear the mess. But the government appears reluctant to carry out important reforms because it will expose the wrong handling of banks by the authorities concerned and may be that many powerful quarters are opposed to such reforms. We want to say that the banking sector can’t be abandoned to default banking and it must undergo reforms to overcome the crisis.
