AT least one in four who borrowed from state-run BASIC Bank in last five years are traceless, said officials. The newly appointed directors of the Board of the beleaguered Bangladesh Small Industries and Commerce Bank Limited found no trace of the borrowers, they said, as per reports of a local daily.Officials said that the loans were extended to fictitious borrowers possibly for the benefit of yet to be identified individuals. They said that this happened due to gross irregularities in approving loans by the immediate past Board of Directors led by former BASIC chairman.Loans totalling Tk 4,236 crore were extended to 335 little-known clients and most of them became defaulters, said bank officials. BASIC Bank’s classified loans stood at over Tk 6,000 crore until September 30, 2014, they said. BASIC Bank’s classified loans accumulated to Tk 6,148.13 crore. Until 2009, BASIC Bank was a sound and profitable bank. BASIC Bank’s dismal performance in recent years has been attributed to shady lending by its immediate past Board of Directors headed by the then chairman. The said chairman held the post for almost six years since 2009.On June 30, the banking sector’s total default loans stood at Tk 51,345 crore, up 6.59 percent from the first quarter according to data from the central bank. The amount is 10.75 percent of the total outstanding loans. Meanwhile irregular banking activities of multi-level marketing companies like Destiny has further added to the woes of the masses as they have misappropriated almost Tk 14000 crore from citizens through a massive Ponzi scheme.The answer to an efficient banking system is clear – keep politics and family and friend connections out of banking. This is the main reason why banks are standing on a massive pile of default loans – various bank officials are bribed by dishonest businessmen or give loans to those who have political connections. These officials are mostly working in state banks, knowing full well that they will only be given what is essentially a slap in the wrist and that the government will have to bail out the banks to help them.Unfortunately bailing out the banks has a high opportunity cost as the money could have been productively spent elsewhere -notably on our cash starved education and energy sectors, among others. Investments of Tk. 5000 crore – if spent on the energy sector alone, would result in an increase in the output of electricity by around 10 percent. The true opportunity cost of banking represents not just the capital stolen but also the opportunity cost of the capital inflows needed to keep the state banks stable. Unfortunately, the government, the Ministry of Finance in particular, and the central bank have failed to realise the fact.
