MoF sets new conditions

The state-owned specialised banks will not be allowed to open new branches further unless 80 per cent of their existing branches are found to be making profit, sources said.

The ministry of finance (MoF) recently passed this message on to four specialised banks as part of its move to save public money, they added.

The banks which have been informed about the decision are Bangladesh Krishi Bank (BKB), Rajshahi Krishi Unnayan Bank (RAKUB), Karmasangsthan Bank and Ansar-VDP Unnayan Bank.

The decision came as the country's specialised banks open branches under pressure from various quarters without any prior feasibility studies. These branches later are found to be incurring financial losses for years, a senior MoF official told the FE.

He said opening of new branches of these banks involves a significant volume of public money. But it was found in most cases that these branches were not necessary, and catered to the banking need of a small number of people.

In the directive, the MoF also said these banks would have to inform the ministry within the month of every September about their opening of new branches in the next fiscal year. They would have to take approval from the MoF before sending applications to the central bank for opening the new branches.

The proposal for opening new branches, to be sent to the MoF, will have to mention how many months or years will be needed to make them profitable.  Of the total branches, 90 per cent will have to be located in rural areas, especially at the union level.

The MoF directive said no new branches of the specialised banks could be opened within 10 kilometres of an existing branch.

Officials said many specialised banks submit proposals every 2 to 3 years for recruiting manpower, as they frequently open branches under pressure. These banks turn to the government's funds whenever they face a crisis.

They said the size of the classified loans in most of these banks is high. This has led to incurring significant losses year after year.

 "These financial institutions open branches without considering business and professional aspects," another senior MoF official said.

He noted Bangladesh Krishi Bank (BKB) has nearly 1,000 branches across the country, and a good number of them have been incurring losses.

 "The establishment of branches unnecessarily by some specialised banks drew our notice when we were reviewing a proposal on raising manpower for the BKB. We feel a large number of branches for a specialised bank are quite unnecessary. Those were not opened considering business interests of the bank," he said.

The Rajshahi Krishi Unnayan Bank  currently has 374 branches, of which 300 are located in rural areas, and 74 in urban areas. The Karmasangsthan Bank has 80 branches at present, while the Ansar-VDP Unnayan Bank has 160 across the country.

Former governor of Bangladesh Bank (BB) Dr. Salehuddin Ahmed earlier told the FE that both the business aspect and people's interests ought to be considered before opening the branch of a bank or a financial institution.

 "The authorities have to consider first whether the branch will be at least self-sufficient. Political pressure or interest of vested quarters should not be considered for opening the branches."

Mr Ahmed said the central bank has set some criteria for new branches. Those have to be followed strictly. "The Bangladesh Bank should not accept any bank's proposal without necessary evaluation," he added.

Contacted, BKB Managing Director Abdus Salam on Tuesday acknowledged receiving a directive and said that his bank mainly provided agricultural loans below the cost of fund.

"Our cost of fund is nearly 12 per cent, while the interest of agriculture loan is 10 per cent. 70 per cent of BKB loans go to the farming sector. It's not possible to make BKB branches profitable with agro-sector lending," he said.

Mr Salam said BKB did not mainly focus on profit making. The bank has a significant contribution to attaining self-sufficiency in food production, he added.

He said public representatives want development of their areas, where bank branches are needed. "So, sometimes we open branches on their request," he noted.