Poor fund management triggers crisis in SCBs

Siddique Islam The financial health of the state-owned commercial banks (SCBs) has deteriorated over the years gradually because of their failure to manage their funds properly. In recent months, the easy access to their funds by the government to meet the latter's financing needs, in the context of growing budget deficit and deteriorating balance of payments (BoP), has further aggravated the situation of the SCBs. The deposit growth of four SCBs has declined in recent months compared to their credit growth. This indicates their weak treasury management, officials said Wednesday. "Actually, the SCBs are now facing a serious fund management problem because of their ignorance about the actual position of assets and liabilities," a senior official of the Bangladesh Bank (BB) told the FE. He also said the central bank has issued a letter of warning to the management of the SCBs after receiving a liquidity profile report. The report was prepared on the basis of some presumptive data. The SCBs have been experiencing the mismatch of fund due to financing on long- term infrastructure projects and Bangladesh Development Fund against their short-term resources, the BB official observed. "A substantial amount of fund moved out to the private commercial banks (PCBs) from the SCBs a few months back because of higher deposit rate, offered by the PCBs," the BB official said while explaining the current fund position of the SCBs. Total deposit growth of the SCBs declined to Tk 1087 billion on October 27, 2011 from Tk 1094 billion on June 30 this year, according to the central bank data. The central banker also said the SCBs have now been turned into borrower banks from being lender ones earlier in the call money market, following the mismatch of their funds. The rate of credit growth of the SCBs increased to Tk 841 billion in the period under review from Tk 831 billion on June 30 last, the BB data showed. "Asset purchase, generally known as loan purchase, by the SCBs from a number of other commercial banks has also contributed to increased credit growth of the SCBs," another BB official said, adding that a good number of loans have been bought by the SCBs earlier. Average credit-deposit ratio (CDR) of four SCBs -- Sonali, Janata, Agrani and Rupali -- rose to 75.03 per cent on October 27 from 72.90 per cent on June 30 last, reflecting their credit growth rate being higher that of deposit. The CDR limit of Agrani Bank Limited has already reached to 87.61 per cent instead of 85 per cent, set by the central bank earlier for conventional banks, the BB officials said. Some insiders said same earlier unscrupulous credit deals on the part of the bank is largely responsible for this situation. Former chief executive officer and managing director of the Agrani Bank Limited Syed Abu Naser Bukhtear Ahmed, however, disclaimed this. He said the SCBs are now facing the fund mismatch situation mainly because of their weak management. "It is an unbelievable situation in the SCBs. Where is now the responsibility of the board of directors and the regulator to rescue the SCBs from the serious problems?" asked Mr. Ahmed. The board's policy should be to improve the liquidity position of each of the SCBs, he added. Monitoring by the BB has weakened with the wrong policy taken by the boards in recent years that created a crisis-like situation in the SCBs as reported by different quarters, he noted. Most SCBs are now maintaining a 'go-slow strategy' for consumer financing aiming to manage their assets and liabilities in line with the BB's advice. "We're now trying to improve the fund management and to avoid any mismatch between assets and liabilities in the near future," a senior executive officer of the Janata Bank Limited told the FE Tuesday night, adding that the Janata Bank has already taken different measures including strengthening its recovery drive to improve the financial health of the bank through reduction of the non-performing loans (NPL). "We're not interested to provide fresh loans particularly for less productive sectors including that of housing," a general manager (GM) of a leading SCB, who is now working in a northern district of the country, said. The GM said most SCBs are now providing financial support to only their regular clients to bring down their overall credit growth to 15 per cent by December this year. On October 16 last, the central bank asked four SCBs to bring down their overall credit growth to 15 per cent on year-on-year basis by the end of December 2011 in line with the existing memorandums of understanding (MoUs). The central bank earlier signed the MoUs with the management of the SCBs, aiming to improve their financial performance by providing policy support.