Lend to SMEs rather than big ventures to avoid risks

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Siddique Islam | Published: January 19, 2016 00:00:00 | Updated: February 01, 2018 00:00:00

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The central bank advised Monday the four state-owned commercial banks (SoCBs) to focus more on SME (small and medium enterprise) lending than lavishing out large loans to cut risks, officials said.
Banks owned by the state are mostly bearing heavy loads of non-performing loans (NPLs), due largely to risky lending in bigger volumes, reports say.          
In view of presence of large volume of NPL, the banks were directed to bolster loan-recovery drives and replenish their capital shortfall.            
The Bangladesh Bank advice came at a meeting held at the central bank headquarters in Dhaka to review the memorandums of understanding (MoUs) of the four SoCBs --- Sonali Bank, Janata Bank, Agrani Bank and Rupali Bank. BB Deputy Governor Abu Hena Mohammad Razee Hassan was in the chair.
After the review of the ground situation, the SoCBs have been instructed to take effective measures to improve their financial health immediately through reducing the amounts on non-performing loans (NPLs).
To this effect, they have been asked to strengthen loan-recovery drives across the country.
"We've asked the SoCBs for taking effective measures for reduction of the amounts of classified loans through strengthening recovery drives," Mr. Razee Hassan told the FE.
He said the central bank also asked three of the SoCBs to meet their capital shortfall immediately.
Currently, the three faced a shortfall of capital in the third quarter of 2015 mainly due to higher volume of their NPLs, another BB official said.
"Higher classified loans have led to a rise in provisioning requirements, which ultimately fuelled their capital shortfall," the central banker explained.
He also said the SoCBs were advised to be more careful in case of borrower selection and exercise due diligence while sanctioning fresh loans.
The SoCBs have already been asked to strictly abide by the existing core risk-management guidelines for improving their efficiency.
The central bank earlier had identified six core risk areas in the country's banking sector: credit, asset and liability, foreign exchange, information technology, internal control and compliance, and money laundering.
"We've also asked the SoCBs to improve internal controls and compliance in line with the BB advice to check fraud and forgeries," the central banker noted.
He also said the central bank also instructed the SoCBs to complete their automation process by the end of this calendar year.
The meeting also reviewed various issues, including recovery position on default loans, liquidity situation, credit growth, operating expenses and cost of funds of the SoCBs.
The chief executive officers (CEOs)-cum managing directors (MDs) of the four SoCBs and three BB-appointed observers were present at the stocktaking meeting.
Earlier on November 18 last, the BB appointed observers for the first time to four SoCBs for improving financial health of the banks through proper implementation of MoU terms.
siddique.islam@gmail.com