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'We are responsible'

Muhith blames banks’ ballooning bad loans on govt 'interference'

February 04, 2018 00:00:00

FE Report

In soul-searching over banking problems, Finance Minister AMA Muhith said Saturday government's increased "interference" is largely responsible for the ballooning bad loans state-owned banks (SoBs) are now burdened with.

He particularly cited the state of affairs of Sonali Bank ltd that bears a large amount of classified loans, as the SBL came under the scanner at its annual meet.

"We are mainly responsible for the existing higher rate of classified loans in the Sonali Bank," he said.

"Besides, poor compliance with KYC (know your client) procedure by the state-owned SBL is also partly responsible for the situation."

Elaborating on the interference syndrome, he said: "We are responsible, because, we have six banks (public sector banks) and we interfere in their activities, and Sonali Bank gets interfered with most because it is the largest."

However, he said the government will not interfere anymore in the state of affairs of SoBs.

"We are trying to reduce the interference; we (the government) have taken a decision so far that if you take a proposal with serious scrutiny and make the decision final, we will not interfere therein."

He said if a loan proposal is taken with due diligence, one can be assured of two things: the project is good and the KYC procedure has been faithfully adhered to.

The minister was addressing the Annual Meeting 2018 of Sonali Bank Limited at the auditorium of the Institute of Diploma Engineers, Bangladesh (IDEB) in Dhaka.

Urging the bank management to increase advance-deposit ratio (ADR), he said: "Your advance-deposit ratio is very harmful to you. It is unbelievable that your ADR is only 38 per cent."

The finance minister reminded the bankers that their key jobs include full compliance with KYC and scrutiny of project proposals carefully. If these two procedures are done carefully, the loans would be trouble-free, he said.

The senior minister said he is not happy at all about the situation now prevailing in the country's banking sector. "There are a lot of weaknesses."

Mr Muhith, however, felt exulted at the difference while comparing the situation now with that in the 1970s -- after the independence of Bangladesh.

"But if I compare the weaknesses of banking sector from 72 to 76, I would say this is the golden age of banking sector," he told his audience.

He noted that in 2009 he had said Sonali Bank was no more the biggest bank in Bangladesh. But the present chairman says they are again going to reclaim the place. "I hope he can."

The minister expressed the hope Sonali Bank Limited would establish itself as an ideal bank within a couple of years. "I've earlier said that we'll turn Sonali Bank into an ideal bank. It's unlikely by 2019. But it's my firm belief that in a couple of years, it should be again back to such position (ideal bank) to render one of the greatest services to government and also one of the greatest services to the banking sector."

He pointed out that out of 1,211 branches of Sonali the number of loss-incurring ones is 181, which is a little bit high.

"But shutting down loss-making branches is difficult, because local people oppose it. But there is another solution to the problem. The branches could be relocated to a nearby area to cover a greater area. Sonali Bank can experiment with this idea."

He said he would look with importance and sympathy into the three proposals the chairman raised in his speech.

State Minister for Finance and Planning MA Mannan said the banks should be given independence to do what they are entitled to do.

He urged the bank to bring new and innovative products for villages as he thinks village economy has totally been changed in recent times.

Bank and Financial Institutions Division Secretary Md Eunusur Rahman said SBL should increase volume of SME (small and medium enterprises) loans.

He took exception to the fact that the bank takes deposit from across the country and disburses it as big loans from few branches in Dhaka and Chittagong.

"This situation has to be changed," the bank and finance official told the function of the bankers.

Bangladesh Bank Governor Fazle Kabir asked the bank to undertake time-bound action plan to gradually turn profitable those branches which have been incurring losses over the years.

He also suggested that the bank should provide loans without any fear following rules and proper assessment, strengthening the loan-realization measures before filing cases against the defaulters, creating entrepreneurs through providing start-up capital, creating compliance culture and ensuring the practice of proper risk management.

"Whatever you do, you have to do business. You have to make profit," the governor said in his suggestion.

The bankers think the fewer loans they disburse, the better. The Hall-Mark scam experience made them think so, he remarked.

"You should not do so; find out new sectors, especially in medium and small enterprises, create entrepreneurs; you don't need to disburse big loans," he told them.

He also urged the Sonali to reduce the volume of loan concentration in sectors and in certain business groups.

Sonali Bank Ltd Chairman Md Ashraful Moqbul placed three proposals for the finance minister's consideration. The proposals are (a) realizing service charge at a rate of 0.40 per cent from the ministry concerned against Tk 940 billion worth of L/C opened against the Rooppur Nuclear Power Plant Project (b) introducing token service charges on 37 services now provided by SBL for free of cost and (c) necessary steps for resolving capital-shortfall crisis in the bank which was inherited during its transformation into a limited company in 2007.

Sonali Bank CEO and Managing Director Md. Obayed Ullah Al Masud gave the address of welcome.

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