Default loan scenario of banking sector

Mahbubul Haque Chowdhury It is alarming that the Bangladesh Bank (BB) in its financial stability report FSR-2012 indicated that the state-owned and the specialised banks are facing fund shortage due to increase of non-performing loans and assets. About 63 per cent of the depositors' money is invested in different sectors. The investors and individuals are refraining from reimbursing the loans. As a result, recycling of depositors' money is held up. The banks will face stiff situation if depositors wish to withdraw a big chunk of their deposited money at any time. On the other side of the scenario, billions of taka have fraudulently been withdrawn by different groups of industries in connivance with bank officials. The siphoned-off money will never be returned as the perpetrators have already fled away with it. As per international standard, if any bank has 7.0 per cent non-performing loan (NPL), it is declared alarming. But our banks are showing 63 per cent NPL and suffering from a shortage of paid-up capital in many cases. The BB can not avoid its responsibility as the lone regulatory body. There have been many a reform programmes in banking sector since liberation. All such programmes suggested salary enhancement, giving more power and promotion to improve efficiency of the officials, but failed to yield any tangible result. These only resulted in change of designation like CEO and promotion of officials up to general manager at bank level. The promotion of GM is again contradictory. The government administers the promotion in public financial Institutions like Ansar-VDP Bank, Karmo Sangsthan Bank etc. These promotions are gazetted and the GMs are transferable to any other bank. This type of bifurcation is not wise. The government officials are not burdened with any deposit or loan recovery target. To maintain uniformity in the conditions of service, all officials should shoulder the risk of recovery of loan. Individual performance of each officer should be reflected in the ACR. Fund management is a vital factor in the banking system. There should be a small committee with senior officials to decide how much capital and where will be invested. The committee will decide which investment will bring good profit, and how much capital will remain as liquid to face the immediate requirement of the bank. The bank should give importance to the cost of the programme. The opening of more branches should be done in such a way that it does not entail losses for number of years. The new products should be introduced, but 10 taka accounts and school banking scheme will be never be profitable if operational costing is considered. School banking and labour savings account was there during Pakistan time to inculcate the habits of savings. At that time, bankers used to go to the schools once or twice a month. Instead, now some banks hang banners indicating that school banking is available there. This is indeed funny; how the children will come to the bank. Moreover, the children of poor parents will be deprived of the facilities. Most of the state-owned banks (SOB) are not getting good income from home remittances. Due to hassles in the public banks, people prefer courier service for sending money. Thus the money being remitted is not coming to the banking field. Mobile banking is not book banking. Though it is getting popular, it is risky and it should be brought to bank. The opening of new branches should be done very wisely. Only non-banking areas having facilities of business should be considered. Otherwise, it will be a losing concern. Media reports in London indicate that many of the big banks which were facing crisis and were about to shut down have recovered tremendously. They offered many facilities to the defaulting borrowers particularly mortgage loanees to come forward with repayment schedule. The central bank also helped a lot. Besides recovery in the banking sector, the British economy is heading towards a good comeback. Our SOBs are burdened with 63 per cent NPL. Many of the banks face capital shortage. The government has decided to provide cash to strengthen their capital structure. This step is temporary and will not last long. The government, in consultation with the central bank, should better take stringent measures to recover the big loans; many of them are with government organisations. All officials of the bank should be integrated with recovery plan and should be given a target. The Board of Directors should also monitor the loan recovery programme. The writer is a former General Manger of Agrani Bank