Banks: Bad loans drive out sound loans

It is too well-known to elaborate that some of our banks are in serious trouble after having advanced a huge amount of money to some big customers. It is learnt from Bangladesh Bank sources that there are loans that can possibly never be recovered. As a matter of fact, the banks were too generous in approving these loans and many pre-conditions for approval were overlooked.
The situation has assumed an ominous proportion and an amount of around Tk 900,000 millions lies outstanding and is on the verge of becoming non-performing loans. There are also evidences that 15/20 banks have disbursed loans to the same borrower. Ironically, these loans have been shown as regular loans in the Banks' records, and as such no legal action can be initiated against the concerned borrowers.
Loans were also allowed to certain customers in violation of central bank's instructions. The commercial banks have disbursed loans worth Tk 40,93,000 millions until September, 2014, of which total outstanding loan stood at Tk 570,000 millions equivalent to 11.6 per cent of the total loans disbursed.
Meanwhile, the banks have written off loans worth Tk 320,110 millions up to June 2014. These loans have been omitted from their balance sheets, because  most of these loans could not be recovered till the end of the 2014 fiscal. It is learnt from banking sources that most of the non-performing and written off loans worth Tk. 900,000 millions were disbursed to only a few customers.
Banks have given maximum loans to 10 big borrowers and they are now hostages in the hands of those borrowers. Conversely, the banks will be in trouble if these customers are in financial crisis, because in that case, there will be little possibility of getting the money back.
Risk increases if the banks are confined to a few customers. The central bank allowed some concessions to banks last December which enabled the banks to regularise the loans disbursed to big borrowers. But those loans are again assuming the status of non-performing loans.
Fourteen banks disbursed loans to one businessman in Chittagong, although none of his businesses was running well. The result was inevitable and he could not repay any of his loans. A bank has written off Tk 4000 million of this borrower. Other banks have been rescheduling his loans repeatedly. Court cases have been filed in this regard, but things are held up in the Supreme Court.
Loans were given with little respect for relevant rules and regulations and as a result, defaulted loans have risen to Tk 572,900 millions. Eight banks have failed to make adequate provisioning. They are Sonali, Rupali, Rajshahi Krishi Bank, Bangladesh Krishi Bank, Standard Bank, National Bank, Bangladesh Commerce Bank and National Bank of Pakistan. Their provisioning deficit is Tk 35,370 million.
Default loan amounts of four state-owned commercial banks have gone up to Tk 207,970 million and 80 per cent of these loans are not recoverable according to Bangladesh Bank report. Rupali bank is worst off, as 90 per cent of its loans are bad loans. Provision deficit of the bank up to September, 2014 was Tk.1000 millions. Next in line is Sonali Bank. Eighty-three per cent of its defaulted loans are bad loans and its provision deficit is Tk 10,860 millions.
It is widely alleged that due to corrupt and irregular practices in the state-owned banks (SoB), their operating costs have gone up. These practices include spending on corporate social responsibility (CSR). Consequently, they are now facing provisioning problem. According to Bangladesh Bank, Sonali bank disbursed loans worth Tk.290,850 million until last September out of which  Tk 109,490 million accounted for defaulting loans which is 38 per cent of total loans.
About 90 per cent of default loans of Rupali bank is bad loan. The bank was supposed to make provisioning of Tk 9360 million. But the actual provisioning amount was Tk 1000 million less. Janata and Agrani Banks had high percentage of bad loans.
Government provided capital infusion of Tk.41,000 million to the four SoBs  in public interest. In only six months, two of these banks are again in capital deficit. In spite of this debacle, spending on CSR activities is going on. According to Bangladesh Bank, Sonali, Rupali, Janata and Agrani banks spent Tk 1100 million on CSR programmes.
Bangladesh Bank report shows that Rupali Bank spent 57.12 per cent of its income on CSR last year. The bank was facing a capital deficit of Tk 2170 millions at the end of June 2014. There are allegations of corruption in its CSR activities too.
In last four years Janata Bank spent about Tk 763 million on CSR activities. Corrupt practices are alleged in this area also. There was reportedly a dispute between the Finance Minister and the Chairman of the bank on matters of CSR for which they blamed each other. The Chairman duly completed his term and left the bank.
The Minister for Planning has held the loan defaulters responsible for the high rate of interest, since the bankers are forced to raise the rate of interest to make up for the void left by them. Banking sector is lagging behind other sectors because of unwise handling of loan disbursement and imprudent management of funds.
A huge amount of money is stuck with a handful of borrowers. Bangladesh Bank governor has advised the banks to advance sound loans. He also expressed the hope that good managing directors and boards will be appointed for the banks.

The writer is an economist and columnist.
[email protected]