Dr. Anu Mahmud
(From previous issue)
Concern For NPLs Growth:
It is a distress signal about the state of the country’s banking sector. That is the impression that one does invariably get from the recent reports in a large segment of the media. The extent of objectivity of all such reports – in terms of both conceptual and contextual aspects of all the relevant issues – is however not beyond question. But this does in no way dispute the fact that the country’s overall banking sector in a poor shape.
The recent directives by the monetary watchdog – the central bank – to the banks to take firm measures for controlling the unabated growth of their non-performing loans (NPLs), do largely corroborate this.
The banking sector, embracing both state-owned entities and private ones, thus remains risk-prone, particularly on account of their distressed assets. This is certainly a worrisome situation, though the performance of banks in some other South Asian economies, particularly that of India, the biggest one in the region, is no better, if not worse, than that of Bangladesh.
Yet it provides no good reason to be complacent. Each country must ensure the functioning of its banking sector on a sound footing. This can help leverage its economic growth at an accelerated pace, with banks playing their role as efficient intermediaries in the process of development.
Viewed from this perspective, the banks in Bangladesh that are hamstrung because of a growing volume of NPLs, do need to undergo a process of rigorous scrutiny. Only then their ailment can be properly diagnosed. Here the efforts of the banks will have to be guided well by the central bank that should look at foolhardy, inflexible theoretical or textbook-type approach.
This guideline must also be backed by fool-proof monitoring, inspection, vigilance and evaluation mechanisms, being free from all sorts of extraneous considerations and influence-peddling by the vested interests.
Otherwise, the very purpose of the central bank’s watchdog role will be compromised. Skill, quality, competence and, above all, integrity of its relevant personnel are matters of prime importance here.
Furthermore, the respective board of directors of each individual bank has to be much more pro-active about giving policy guidelines and decisions on all matters of consequence to the management personnel.
The bank executives also need to perform their best through exercise of due diligence and unceasing pursuit of the norms and practices of banking under a well-functioning system of delegated authorities and responsibilities.
The board of directors of banks are not meant to choose or select individual clients directly to lend out loans or credits and to decide about what amount of money to be given to such client under normal circumstances. They are neither expected to exercise any sort of overt or covert clout over day-to-day operational activities of the banks.
All such things, as noted above, are already laid out clearly. But these are easier said than done or practiced. There lies the root of the problem about the swelling level of LPLs of the banks.
That is precisely the reason why the obvious facts are recounted here. Banks or, to be exact, bankers must identify their clients, going by their track-record and taking overall borrowing of the latter from the banking system as well as their performance about loan servicing, into consideration.
Furthermore, another critical aspect about loan operations merits attention here. Such operations involve not only sanctioning or disbursement of loans but also monitoring the uses of funds and loan servicing as soon as it become due. This is all the more important, considering the fact that the NPLs now continue to rise, despite the cuts in lending rates. This only shows that loan repayment or servicing has little connection, in the given particular context of Bangladesh, with lending rate. This runs counter to arguments by different quarters about high lending rate being the prime factor for inability of borrowers to service their credits.
Two more issues – heavy concentration of loans among a very small number of business groups and also in too few areas as well as the growing practice of buying of assets of large borrowers’ by one bank from another – provide strong causes for concerns so far as the growth of NPLs is concerned. There must be a holistic approach to deal with this moot problem facing the banking sector.
Otherwise, there will hardly be any change in the situation in the foreseeable future.
Some Banks Are Burden To Economy:
One of the major duties of commercial banks is to promote financial inclusion for accelerating the economic progress of the country. Many private banks pay little attention to performing this vital job. It is even worse that sponsors of some banks are more interested in making a huge amount of money through embezzlement!
They have little regard for banking laws and safeguarding the interest of their clients. Recruitment of officials of less professional integrity in the management has been plunging the banks and the banking sector of the country at large into a deep crisis.
It has been learnt that nine new private banks got the central bank’s approval allegedly due to political pressure from the government high-ups in 2013. They are found involved in widespread irregularities, including disbursement of big loans to fake or dubious entities. They are playing this open-secret trick which is mainly behind the worsening default-loan culture in the country.
In a short span of time after the start of their operation they proved that they are failure to protect the interest of their clients, to take banking benefits to the mass people, and ultimately, to serve the very purpose of their existence. Also, the long-standing default-culture is being aggravated due to the involvement of these banks in widespread anomalies.
According to media reports, Farmers Bank and NRB Commercial Bank are now in the centre of attention due to their mounting non-performing loans and widespread mismanagement.
Economists and bankers have rightly identified these banks as burden for the economy. They cannot serve any good to the economy as well as the country. The central bank has taken praiseworthy steps against many high-ranking officials of several of these newly established banks. This is a time-befitting step and there is no alternative to taking disciplinary action against those who are involved in banking sector irregularities.
Reforms In Banking Sector:
It will be positive to take short, medium and long term administrative and legal reforms initiative to over come the crisis of the banking sector. The financial institute division has finalized 27 points recommendations to perform reforms, those will be placed for the approval of the Finance Minister. After this approval those related guidelines for implementation, revise and for realization instruction will be given to other banks and financial institutions including Bangladesh Bank.
But economists and experts think that before the implementation of this recommendations, for banking sector formation of a commission by the Bangladesh bank or from the government side become necessary. It is not necessary to say, if the commission is formed they will review the recommendations to take necessary steps by taking into consideration of implementable recommendations.
Since more than couple of years crisis are continuing in the banking sector, those are now taken in serious shape.
It may be noticed that, in this sector thousands crores of money were captured through fraud and corruption. Only from Basic Bank about Tk 4 and half crore were looted with the co-assistance of Board of Directors. Still the Haul Mark scandal become remarkable-prominent discussion matter in the banking sector.
Along with this latest inclusion is the irregularities-corruption of the Farmers’ Bank. Beside these maximum banks are giving birth to new irregularities, malpractices and corruption, negative effect of those reflected to whole banking sector.
With the expansion of indiscipline and malpractices in the banking sector depositors become shaky and afraid. Under this circumstance, if this sector be placed within the structure of discipline through administrative and legal reforms, that will safeguard the interest of clients and side by side that will bring good result for the economy of the country undoubtedly.
With the requirement of the time the banking sector is expanding. This sector should regain the confidence of the people. For this reason it is urgent to establish irregular and corruption free banking system. But the matter of worried is that, suitable, competent and honest peoples are not recruited in the banks. The owners and directors of most of the banks are under political shelter.
Even the chairman and directors of the nationalized banks appointed under the political consideration. For this reason the control and supervision of the central bank become mostly week. They are giving birth to different types of scandals by avoiding the set rules and regulations of banks. With the cooperation of the dishonest bankers brought up cheating group captured huge amount of banks.
There is no way to express doubt about the fact that, the corruption of top personnel of banks captured the whole economy. The report on ‘Bangladesh Development Update’ focused by the Dhaka office of the World Bank in 2016 was given emphasize on initiative to take some reforms activities to achieve higher growth.
Though in that report advice was placed in favour of conforming of accountability in banking sector, but the tragedy is that, still the matter of accountability was not confirmed. We think, to over come the remaining problems of the banking sector, after the formation of a commission if the steps are taken to bring required administrative and legal reforms that will be effective and fruitful.
We hope the competent authority of the government will take the matter with proper attention and be given priority to implement the reforms programs in the banking sector for the overall benefit of our economy as a whole.
(Concluded)
