Economists and analysts have been waving the red flag for some time, even the government friendly parliament has raised questions but according to the latest statistics made available default loans from banks have climbed to Tk 900 billion. That's before the next stack of bad news descends in terms of written-offs which could take this figure up to Tk 1300 billion. In not so many words the process of diligence is taking a hammering when it comes to bank loans that too after an intervention by the Prime Minister to provide loans at single digit interest rates.
Banks are supposed to make profits from the spread between deposits and loans but one after the other private banks are being guilty of being forced to sanction loans that then turn bad. Collateral submitted don't come anywhere near the loans so even confiscation won't help. It is almost as if assets of companies can't be confiscated to cover the loans. Balance that against capital flight and lackadaisical efforts to recover these and it turns into a huge and endless black hole. The names of offending companies are no longer under wraps but till today Sonali Bank, for example hasn't been able to recover a penny of that what is owed by the Hallmark Group. That too after the Chairperson was awarded three years jail for not accounting for her earning vs spend returns. It's a small price to pay for a very large sum that apparently has vanished into thin air.
State-owned banks' new leadership look to the government to make up the massive capital holes-as a result of the misdemeanours and even private banks seek deposit increases of government funds to be able to operate. On one hand the Finance Minister allayed disaster fears by terming such individual cases as trifling. On the other he said the government can't allow banks to come a cropper. And then again he washed his hands of responsibility for private banks and their woes. Somewhat like the ostrich approach to issues, the government is considering allowing newer banking licenses when surely a consolidation approach is the only way. The international development partners have offered a lifeline of sorts by providing the stable banks generous dosage of capital in foreign currency to be disbursed to businesses that do pay back. But it is galling that established companies continue to, with impunity have their loans rolled over and rescheduled time and time again.
The traditional methods have failed and with elections approaching hard-line action is not unexpected. The hunger for financing will be limited to election spends and the ability of an election time government to focus on recovering loans is less than likely. In the absence of a declared Plan B the errant loans can only be headed in one way-massive fraud.
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