Some Tk 760b bagged by 61 big borrowers from banks

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Siddique Islam | Published: April 02, 2015 00:00:00 | Updated: November 30, 2024 06:01:00

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Nearly 15 per cent of the total outstanding loans of the country's banking system belong to only 61 of big borrowers, bankers and experts said.
The large borrowers -- both individual and organisational -- received Tk 760 billion (Tk 76,000 crore) from different commercial banks to run their businesses across the country, according to a central bank confidential report, based on last November's data.
The Bangladesh Bank (BB) has determined large borrowers by the size of their loan portfolios -- Tk 5.0 billion being the baseline.
Some banks have become "hostage" to a number of influential large borrowers who use the banks for protecting their business interests, they added.
Repayment failure on large loans is seen by the critics as a serious threat to stability in the banking sector.
It's also sapping both profitability and capacity of providing fresh term loans, they observed.
"The banks will have to play a proactive role in managing these loans prudently so that these loans may not become classified in future," Bangladesh Bank Governor Dr Atiur Rahman told the FE.
He also said the central bank would act professionally after receiving application for restructuring the large loans.
"The banks will have to face the consequences if they do not prudently manage such loans after restructuring."
The large borrowers having problems with repayment are allowed to apply to the central bank for restructuring their loan portfolios by June 30 this year. But the BB has not yet received a single application from any of such large debtors.
The central bank chief forewarned no borrowers would be eligible for such restructuring facility if they were found involved in any forgery or malpractice.
After restructuring, if any borrower fails to repay two consecutive instalments of their loans, such facility will be cancelled, Dr Rahman added.
"The policy will help increase the profitability of banks through curbing the amount of classified loans," the BB governor said, adding that it will also help create employment opportunities.
"But the banks too will have to take some hits for their inefficiencies in ensuring timely repayment of these loans," he noted.
The official data show Tk 31 billion out of total large loans are already troubled ones -- officially known as non-performing loans (NPLs). The NPLs of the banking sector have been on the rise in recent months.
Talking to the FE, a BB senior official said normally the large borrowers avoid getting in troubled zones mainly for keeping their whole business activities running as well as maintaining their social status.
The total outstanding credits, excluding inter-bank borrowings, stood at Tk 5079.98 billion, as of November 2014.
Producers of essential items, shipbuilders, realtors, textile, power and construction firms and traders are in the galaxy of these big borrowers.   
Khondhkar Ibrahim Khaled, former deputy governor of the BB, proposed that the central bank impose an industry
ceiling for group loans for discouraging credit concentration with a single group.
There is a single-borrower-exposure limit but there is no group exposure limit, Mr Khaled, also Dr Muzaffer Ahmed Chair Professor of BIBM, explained.
"A section of banks have become hostage to a number of influential large borrowers who use the banks for protecting their businesses' interests," the senior banker observed.
"In some loan cases single-borrower- exposure limit was not followed," Bangladesh Institute of Bank Management (BIBM) said in its latest Banking Review Series 2014.
Besides, disregarding the BB instructions creates overdependence of a bank on a few parties, according to the BIBM.
"It also gives scope to the borrowers to divert their funds, encourages them to do unproductive expenses and finally makes them authoritarian over banks," the institute noted.
Talking to the FE, Dr Prashanta Kumar Banerjee, Professor and Director (RD&C) of the BIBM, said the banks will have to create more borrowers by looking at development of rural economy as well as sub-urban economy.
Dr Banerjee also suggests the banks should go for loan syndication and club financing to minimize their risk of over- concentration.
Golam Hafiz Ahmed, managing director and chief executive officer of NCC Bank Limited, sees the risk as enormous for such type of loans.
"Businesses expanded one after another depending on bank loans. This is not a healthy sign," the bank boss said.  
"We're watching overall situation closely," Mr Ahmed told the FE, adding that any party of his bank was yet to be noticed taking preparation for applying to the central bank for loan restructuring.
A lot of uncertainty is involved in recovering the restructured loans because of longer period, the senior banker observed.
Under the existing large-loan- restructuring policy, the borrowers are allowed to repay their restructured term loans for maximum 12 years, while both restructured continuous and demand loans will be cleared in maximum six years.
Earlier on January 27 last, the BB board of directors approved the policy allowing loan rescheduling only if the business entities are hit by global or domestic shocks.
siddique.islam@gmail.com