Robust growth of the banking sector notwithstanding, in nominal terms, all banks are doing well. In real terms, only a few, particularly the foreign-owned banks are doing fairly well. In the CAMEL rating, the foreign-owned banks are topping the list with some private banks scoring good pass marks. The condition of the state-owned commercial banks-- Sonali, Janata, Agrani and Rupali-- along with semi-commercial bank BASIC is deplorable. Most of the state-owned banks are suffering from large-scale capital shortfall.
Over the last two years, the public banking sector has been drawing attention for various scams in Sonali bank, BASIC bank and Janata bank. The consequences are obvious. The default loans of state-owned banks stood, on an average, around 40 per cent of their total loan portfolio. This has led the banks to capital shortfall.
These banks are suffering from 'capital adequacy ratio,' the minimum requirement of which is 10 per cent. Recently, there was a press report, quoting the World Bank (WB), that the banking sector in Bangladesh faces systematic risks due to the low capital base in the state-owned banks. This accounts for a quarter of the assets of the banking system. The WB, however, identified political unrest and the cascading effects of poor lending decisions in the banking sector.
Recently, there are press reports that the state-owned banks, particularly the scam-infested Sonali bank and BASIC bank are in a dire problem of capital inadequacy. Basic bank's default loans stood at 55 per cent in last October of its total loan portfolio. Its capital shortfall stood at Tk 22.58 billion. This bank is facing problems in opening letters of credit with foreign banks due to large capital shortfall. The situation can be understood when one sees that the capital adequacy ratio of this bank eroded to a negative 14.25 per cent at the end of October this year. The condition of Sonali bank is no better. The capital adequacy ratio of this bank was found to be 5.53 per cent in October, which is much below the minimum requirement of 10 per cent.
These banks are lobbying to get capital support from the government. The government does not seem to be too unhappy about this, as it has already earmarked Tk. 55.00 billion in the budget-2014-15 for the purpose of strengthening the state-owned bank's financial position. Last year also, the government provided Tk 41.00 billion from the budget to the four state-owned banks.. Sonali bank alone received Tk 19.95 billion. This year, Sonali wants more and BASIC bank is asking for Tk 20.00 billion.
On the other hand, the banks, as a whole, have in their accounts billions of idle money. There is no proper policy on lending for investment and for promoting trade and commerce. The idle money can be utilised for infrastructure development and promotion of exports. In the recently held Dhaka Apparel Summit, the garment entrepreneurs, experts and policy makers shared their views demanding increased expenditure on infrastructure and lower interest rates. They also stressed on political stability. It was disclosed in the Summit that interest rates in Bangladesh are higher than those of other garment exporting countries. Interest rates range between 14 and 18 per cent for exporters in Bangladesh. In India, the range is between 6 and 9 per cent. In China, it is 6 per cent, in Pakistan 5.9 per cent, in Sri Lanka 6.9 per cent, in Thailand 7.9 per cent and in Cambodia 9 per cent. If lending rates are lowered, the country would be able to grab more share in the global apparel market. It was also claimed that 500 garment factories were on the brink of closure for high bank interest rates.
All these problems suggest a combination of inefficiencies and bad governance in the banking sector. Political instability in the country, politically motivated appointment of management boards in the state-owned banks, political leverage for a section of people in getting loans, the huge idle money in the banks, the lower rate of investment and the higher rates of interest for the exporters and the government's soft attitude to provide financial support to defaulting state owned banks have given birth to a vicious circle of miss-governance and scams in the banking sector. The remedies too are available. The government can release some state-owned banks to the private sector, exercise less intervention and strengthen the central bank in regulating and supervising the banking institutions.
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The writer is an economist
and columnist.
chowdhuryjafar@ymail.com
