The banking network has covered the country for the past 50 years, but the culture of defaulting loans in the system has become a major problem as people with political clout continue to plunder the industry.
Even as delinquent and non-performing loans are on the rise, the government and the central bank have done little to enforce banking rules and regulations in order to tidy up and protect the sector, bankers and officials said. economists.
The control exercised by politically powerful people over state-owned commercial banks is the main reason for the surge in NPLs in the banking sector, they said.
The amount of overdue loans, excluding rescheduled and written off amounts and credit, the collection of which remains blocked due to a court order, increased to Tk lakh 1.16 crore in September 2019.
If the write-offs of Tk 53,258 crore and the loans of Tk 80,000 crore under legal proceedings are included in the amount, the total overdue loans is approximately 2.5 lakh crore of Tk.
However, the government subsequently allowed defaults to become regular borrowers with only a 2 percent down payment.
The policy has helped banks hide much of these loans under the rug for a period of time, as the amount of delinquent loans fell below Tk 1 lakh crore after the policy was implemented, but still a times it has surpassed the Tk 1 lakh crore mark in two years.
Almost half of delinquent loans are held by just six state-owned banks over which politically influential people have broader control.
According to the Executive Director of the Policy Research Institute, Ahsan H Mansur, the culture of delinquent loans in the country is a source of serious concern and political leniency is at the root of the situation.
He is also skeptical of getting the money back.
Not one bank in particular, he said, but many banks, including state-owned banks, are plagued with defaulting and non-performing loans, adding that the culture of default continues unabated thanks to some kind of government support.
Small borrowers typically clear their loans, but people who take large loans are out of reach, the economist said.
Without political commitment backed by effective measures, the situation cannot be overcome, he said.
Otherwise, Mansur warned, only a few banks that properly follow corporate governance will survive and other banks will emerge as a responsibility for the government and the people will have to bear the burden in the end.
As the former Managing Director of the Bangladesh Bank Management Institute, Toufic Ahmad Choudhury said, even though the banking sector has contributed to the country’s economic progress, by providing service at the local level, the lack of governance Business and the existence of high rates of non-performance loans are two major problems in the banking sector.
The banking industry has been affected by a series of scams and irregularities since the Awami League took power in 2009, including the 3,572.98 crore Tk scam of Janata Bank by five subsidiaries of the Crescent Group and the embezzlement of 5,508 crore of Tk from the bank by AnonTex in the 2018-19 fiscal year alone.
In 2012, the Bismillah Group defrauded around 1,100 crore of Tk from Janata Bank while the Hallmark Group siphoned around 3,500 crore of Tk from Sonali Bank in 2013.
In 2016, central bank investigations revealed that Farmers Bank, later renamed Padma Bank, disbursed loans and concealed overdue loans amounting to around Tk400 crore in blatant violation of banking rules.
After the scams, the government was forced to restructure the Farmers Bank and injected funds into the banking entity from other government banks.
According to the former chairman of the Bangladesh Bankers Association, Anis A Khan, the central bank has formulated a set of rules and regulations regarding the function of the board of directors, president, CEO and management committee of risks of banks in order to strengthen corporate governance in banks.
But, Anis, former managing director and CEO of Mutual Trust Bank, said that in government banks, political influence is very active due to government ownership and lack of corporate governance, while around half of the presidents and board members of private banks strongly influence the day-to-day activities of their banks.
Speaking on financial inclusion and reducing inequalities, Toufic Ahmad said that various government policies are aimed at inclusive development and hence equality.
It is the banks that are guilty of failing to act on the principles voluntarily, Toufic said.
The financial inclusion policy was largely driven by the central bank, but it should have been worked on by the banks, he observed.
The central bank has also placed emphasis on inclusive banking in various forms.
The BB forced banks to open accounts with only Tk 10 as deposit, introduced bank agents, mobile financial services, sub-branches, agricultural lending policy as well as opening departments like sustainable finance and the agricultural loans department, among others.
The number of bank branches reached 10,826 in October 2021 against 1,611 in 1975.
Besides branches, banks have 13,591 agents and 18,314 outlets nationwide.
The number of agents of mobile financial service operators reached 11.55 lakh in October 2021.
Even though banks are reluctant to seek inclusive financing, Toufic, also managing director of the Bangladesh Academy for Securities Markets, credited the banks with the country’s economic development because they were funding all kinds of initiatives – both short and long projects. term. and syndicated financing.
Ahsan H Mansur said banks should focus more on rural areas, although the emphasis increases as the rural economy strengthens.
Even though the country’s policies support rural development, at least on paper, most banks are unwilling to go to remote areas due to lack of capacity and a skilled workforce, Mansur said. .
Most banks are interested in trade and business finance, he noted.
Asked about the role of the banking sector in promoting equality, he said: “We have a lot of room for improvement and we haven’t achieved it yet”.
He felt that the banking sector had not yet explored the market based on its expansion.
Mansur mentioned instant nano-lending through MFS operator bKash, a product suitable for people living in remote areas, in this regard.
After the establishment of Bangladesh in 1971, the foundation of an independent banking system was laid with the establishment of the Bangladesh Bank in 1972.
Before independence, most of the banking companies were owned by West Pakistanis.
Immediately after independence, Bangladesh adopted a state-led credit policy with a view to reviving the economy.
National private commercial banks were only allowed to operate in 1982.
During the 1980s, the government had to embark on a program of financial reforms, which gained momentum during the 1990s.
Reform began with privatization and denationalization in 1982-1983, followed by the introduction of the financial sector reform program in 1989-90 to deregulate the banking sector in accordance with the recommendations of the National Currency Commission, the Bank and credit and the World Bank. .
Two of the six state-owned commercial banks – Pubali Bank and Uttara Bank – transferred to the private sector in January 1985, while Bank Rupali was incorporated as a public limited company with effect from December 1986.
The other three banks, namely Sonali Bank, Agrani Bank and Janata Bank, were also transformed into public limited companies in 2007.
After liberalization, Bangladesh’s banking sector has become an attractive ground for domestic and foreign investors who wish to take part in the game.
The number of programmed banks has already reached 61.