Recovery of loans is vital for the banking industry
Wednesday, 30 December 2009
Mahbubul Haque Chowdhury
THE ordinary definition of a bank is a dealer in credit. The bank accepts deposits from the depositors in exchange of certain profit and lends it out to the borrowers at a rate of interest profitable to it. The deposited money cannot be kept idle in the vault as the depositors will demand their profit or interest after expiry of a certain period. Usually the bank prefers to invest the same in the productive sectors to create employment opportunities as well as to facilitate a higher growth of gross domestic product (GDP). Prior to liberation of Bangladesh, there were few banks operating in the then East Pakistan. These banks were much conservative to lend money in a bigger way. Moreover, due to limitation of branches, the banks could not spread their business to rural areas. The big loans were centered on big industrial groups.
Bangladesh came into being in 1971 with a big burden of loans of left-away industries. Day by day the loan amount started to grow. The banks restructuring took time; shortage of expert manpower and distribution of fresh loans for reconstruction of Bangladesh led to shooting up of credit line. The new businessmen and traders and also industrialists could not show any better results; rather, they swallowed the bank money for their own purpose. The banking sector could not recover a substantial amount of loans from such borrowers. As a result, the recovery of bank loans started limping. Many of the banks faced liquidity problems as most of their funds remained locked up in the hands of the borrowers. Banks' efforts of persuasion and litigation could not show any ray of hope.
The international standard of bank bad loans is 6.0 to 7.0 per cent of their total loan portfolio. But in our country, the amount of banks' stuck-up loan is around Tk 250 billion (25000 crore). Despite banks' many attempts, they could not succeed to recover the loans to the desirable level. Some of the banks prefer to waive the loans to improve their balance sheet. The banks' waiver action has further contributed to deteriorating recovery position. In many cases where money suit cases are there, the defaulters have been trying to show to the court that their loans were waived by the bank. Some of the banks are now preferring to hand over the recovery plan to the private agents on a commission basis. Such recovery agents are trying to get commission without showing any tangible result. The bank officials who are supposed to recover the loan as a part of their duties are also getting salaries, doing nothing for recovery.
The government has also become very lenient to the defaulters. There was a system of making down payment to put pressure on the borrowers to repay the loans. But the government has now waived the condition and is allowing the borrowers to remain defaulters. Due to imposition of a state of emergency, many of the borrowers could not do their business. But many of the borrower business-houses carried out their routine business, obeying the rules of corporate management. Very few such houses were shut. The global depression did not affect our business houses very badly. Even then, the government has come forward with bail-out programmes. It should be noted that the American and European bank, insurance and large automobile companies were forced to shut down their operations due to loss and liquidity problems. If our banks' cash is allowed to be kept in the hands of the delinquent businessmen and traders, the general depositors may face problems due to shortage of cash in the banks.
The present government is not showing the much-needed interest in recovery of stuck-up bank loans; rather, it has now opened the sluice gate of loans to the incorrigible delinquents.
(The writer is a former general manager of state-owned commercial banks)
THE ordinary definition of a bank is a dealer in credit. The bank accepts deposits from the depositors in exchange of certain profit and lends it out to the borrowers at a rate of interest profitable to it. The deposited money cannot be kept idle in the vault as the depositors will demand their profit or interest after expiry of a certain period. Usually the bank prefers to invest the same in the productive sectors to create employment opportunities as well as to facilitate a higher growth of gross domestic product (GDP). Prior to liberation of Bangladesh, there were few banks operating in the then East Pakistan. These banks were much conservative to lend money in a bigger way. Moreover, due to limitation of branches, the banks could not spread their business to rural areas. The big loans were centered on big industrial groups.
Bangladesh came into being in 1971 with a big burden of loans of left-away industries. Day by day the loan amount started to grow. The banks restructuring took time; shortage of expert manpower and distribution of fresh loans for reconstruction of Bangladesh led to shooting up of credit line. The new businessmen and traders and also industrialists could not show any better results; rather, they swallowed the bank money for their own purpose. The banking sector could not recover a substantial amount of loans from such borrowers. As a result, the recovery of bank loans started limping. Many of the banks faced liquidity problems as most of their funds remained locked up in the hands of the borrowers. Banks' efforts of persuasion and litigation could not show any ray of hope.
The international standard of bank bad loans is 6.0 to 7.0 per cent of their total loan portfolio. But in our country, the amount of banks' stuck-up loan is around Tk 250 billion (25000 crore). Despite banks' many attempts, they could not succeed to recover the loans to the desirable level. Some of the banks prefer to waive the loans to improve their balance sheet. The banks' waiver action has further contributed to deteriorating recovery position. In many cases where money suit cases are there, the defaulters have been trying to show to the court that their loans were waived by the bank. Some of the banks are now preferring to hand over the recovery plan to the private agents on a commission basis. Such recovery agents are trying to get commission without showing any tangible result. The bank officials who are supposed to recover the loan as a part of their duties are also getting salaries, doing nothing for recovery.
The government has also become very lenient to the defaulters. There was a system of making down payment to put pressure on the borrowers to repay the loans. But the government has now waived the condition and is allowing the borrowers to remain defaulters. Due to imposition of a state of emergency, many of the borrowers could not do their business. But many of the borrower business-houses carried out their routine business, obeying the rules of corporate management. Very few such houses were shut. The global depression did not affect our business houses very badly. Even then, the government has come forward with bail-out programmes. It should be noted that the American and European bank, insurance and large automobile companies were forced to shut down their operations due to loss and liquidity problems. If our banks' cash is allowed to be kept in the hands of the delinquent businessmen and traders, the general depositors may face problems due to shortage of cash in the banks.
The present government is not showing the much-needed interest in recovery of stuck-up bank loans; rather, it has now opened the sluice gate of loans to the incorrigible delinquents.
(The writer is a former general manager of state-owned commercial banks)