Ctg big contributor to PCBs\\\' NPL buildup

A large number of clients holding non-performing loans (NPL) from private commercial banks (PCBs) belong to the Chittagong trading zone.
Ali Reza Iftekhar, Chairman of the Association of Bankers, Bangladesh (ABB), a grouping of 39 PCBs, disclosed it at a meeting of bankers held at the Bangladesh Bank Monday last.
The ABB chairman said: "The NPL volume is rising mainly due to the significant accumulation of the bad loans in a particular district (Chittagong)."
The central bank does not compile any data on NPLs based on any region. But according to central bank sources, more than 60 per cent of those who open and settle LCs hail from Chittagong.
"The bad loan concentration is now too high in the port city," said a central bank official.
He also noted that business houses at Khatoonganj in Chittagong open most of the LCs.
Different studies showed that import of commodities ranging from wheat to spices is usually controlled by the Khatoonganj-based traders.
Almost all leading steel rod manufacturers are based in the port city. They import raw materials like billets and iron scraps valued approximately at US$ 700 million annually.
Apart from this, the ship-breaking industry dismantles around 250 vessels worth approximately US$ 1.5 billion annually.
Sources at the Khatoonganj commercial heartland port city said bad loans accumulated against the import of commodities like edible oils, wheat, raw sugar and in the areas including ship-breaking.
The market leaders in Chittagong in import of many of the commodities are the business houses like S Alam, PHP, Abul Khair, Mustafa Group, Ilias Brothers, MD Group, Imam Group, Nur Jahan, KSRM, SA Group and GPH Ispat.
The overall NPL has increased in the banking sector as a result of the build-up of bad loans in the port city-the country's main commercial lifeline.
The volume of default loans increased 18.70 per cent to Tk 481.72 billion in the January-March period of 2014 from Tk 405.83 billion during the previous quarter, the BB data showed.
Only in the 39 private commercial banks, the NPLs grew by 5.77 per cent to Tk 185.28 billion in the period.
The PCB sources said the NPL volume might rise further in the April-June period. The release of the data on it is expected sometime in August next.
Mr Iftekhar, also managing director and chief executive officer of the private commercial bank Eastern Bank Limited, said PCBs had been suffering as they lent out mostly there-for commercial operations, not for productive ventures.
Sources familiar with the developments said many importers took loans and misused the money by investing it in land purchase and in the share market.
They also said some became defaulters on the 'genuine ground' like the fall in prices of imported goods in the international market.
However, the ABB chief said many PCBs had been trying to recover the loans through realising down payment from the borrowers.
Mr Iftekhar said NPL buildup posed a big threat to the banking industry. It was eating up the profits of banks.
A deputy managing director of a PCB termed the growth in bad loans very discouraging and it was giving a bad signal for the banking sector.
He said bankers were facing pressure from their authorities to expedite the recovery of bad loans.
Analysts said the financial sector would face serious problems, once the big companies become bankrupt.
"We're talking about one Hall-Mark or Bismillah Group, but there are many such groups in Chittagong and their outstanding bank loans will be at least 10 times higher than Hall-Mark's," said Dr Ahsan H Mansur, executive director at the Policy Research Institute of Bangladesh (PRI).
On the other hand, the loan defaulters are increasingly taking the advantage of loopholes in the rules on loan recovery through filing writ petitions seeking stay order or clemency or adopting dillydallying tactics, according to insiders.