The country's banking sector is now on a reverse gear once again. Successes achieved in streamlining it through joint efforts of government, central bank, private sector sponsors and multilateral lenders over the past few years now face the risk of being wiped out. The state-owned banks are now going through one of their worst times. Mismanagement coupled with political interference is thought to be responsible for their present deplorable state.
But the privately-owned commercial banks though not immune to management problems, apparently, are victims of ongoing political trouble which has resulted in a very sluggish investment climate. However, adverse political climate is hurting both private and public sector banks equally.
That the situation is increasingly becoming difficult for the banks is well manifested in the latest statistics of the central bank on classified loans.
The amount of classified loans in the banking sector recorded a steady rise throughout the current calendar year and stood at over 567 billion at the end of the third-quarter (July-September) period. The amount is equivalent to 13 per cent of the total outstanding loans of the sector.
The share of the classified loans in the total outstanding loans of the banks increased by 0.88 percentage points to 12.79 per cent in the third quarter of the calendar year.
In contrast to dismal performance in areas of deposit mobilisation and lending as against the same of the private sector banks, the size of non-performing loans (NPLs) belonging to four state-owned commercial banks is now larger than that of 37 private banks.
The size of the NPL of four public sector scheduled banks at the end of September last stood at Tk. 241.74 billion while the same belonging to the private banks stood at Tk. 223 billion.
However, in the third quarter of the current calendar year, the rise in NPL in the case of private banks was greater than their public sector counterparts.
Bankers, however, tend to attribute the recent rise in their classified loans partly to the latest changes brought about by the central bank in the method of loan classification. The changes have surely made the situation a little bit tough for them. But the sluggish investment climate and political troubles are more to blame for their plight.
The way things have been developing in the political arena, it does appear that the business climate would be even harsher during the last quarter of the current calendar year. It is most likely that profitability of banks would take a deep plunge and the size of NPL would grow bigger at the end of the current calendar year. The default loan situation, however, was not that serious until late 2011. But it turned really bad in 2012 and the same trend continues until now.
The amount of classified loans hovered around Tk. 220 billion in three consecutive years, starting from 2009. But it has made a quantum jump in 2012 to reach Tk. 430 billion at the end of the year. The uptrend continued and the Bangladesh Bank figures showed the classified loan amount at Tk. 567 billion at the end of September last. If the amount the banks had written off during the period is taken into account the actual default loan amount would go up substantially.
The unearthing of a few scams involving funds disbursed by a number of state-owned banks is thought to be responsible for a sudden jump in the volume of default loans.
There is no denying that all sections of society, including business institutions and banks, are going through a difficult time and the situation has been deteriorating fast because of confrontational politics over the type of poll-time government. Obviously, the rate of default on loan payments will go up.
To compensate for the losses incurred during such times, the banks are required to put in extra efforts to recover default loans. Unfortunately, such efforts are found wanting, particularly on the part of state-owned banks which are often seen creating scopes for top defaulters to dodge loan repayments through a mechanism called 'rescheduling'. The mechanism is an old and acceptable method of helping both banks and borrowers. But it is often abused to help delinquent borrowers. That should not be the case.
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Troubled politics causes rising loan default
Shamsul Huq Zahid | Published: November 11, 2013 00:00:00 | Updated: November 30, 2024 06:01:00
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