When ‘connections’ matter most

The problem of non-performing loans (NPLs), it seems, is far more serious than what it is officially projected.
Bankers hardly talk in public about the problem. The honchos at the banking sector regulator, in this case the central bank, on occasions do talk about it.
The enormity of the problem came to light when a number of bankers attending a seminar in Dhaka last week broke their silence and sounded an alarm bell about the rising volume of NPL in the country's banking sector.
"The default-culture has gone deep and is rising", one of the private sector bankers told the seminar.
The volume of default-loans has grown bigger in recent years. It is widely believed that the volume of classified loans shown in the financials in a number of private sector banks is not the real one. Taking advantage of some selected Bangladesh Bank (BB) circulars and doctored financials, a number of banks have kept a sizeable amount of their classified loans hidden.
If an extensive probe is made by the central bank into the quality of loans and both tangible and intangible assets of a few banks, some ugly and unpalatable truth might emerge.
The state of financial health of the state-owned banks is more or less known to everybody. But the situation, it is suspected, might prove worse in the case of some private banks where a few selected families or individuals have been calling shot for years.
It seems that incumbent Commerce Minister Mr. Tofail Ahmed is also not happy with the NPL situation with the country's banking sector. Speaking at the seminar organized jointly by the Bangladesh International Arbitration Centre and the Metropolitan Chamber of Commerce and Industry (MCCI), Dhaka, last week the commerce minister particularly blasted the BB for offering special facility to top bank loan defaulters.
He felt that the measure had set a bad precedence and it would encourage the default culture further.
The observations made by the commerce minister might come as a surprise to many for the special facility that came in the form of 'restructuring of loans' did not come without the blessings from some powerful quarters.
The so-called big business houses which did not have any option left to wriggle out of the debt-trap came out with the idea of loan restructuring facility and started lobbying with the powerful quarters and succeeded, finally.
But the central bank, understandably, did not offer such a facility on its own. Perhaps, it was forced to swallow the bitter pill. The BB, however, should have taken a firm and fair stand on the issue. The failure to take such firm stand, supported by relevant laws and rules, has been one of the major weaknesses of all regulatory bodies in this country.
Be its sanctioning of bank loans or recovery of the same or getting things done in any government offices, in addition to speed money, what counts most is the 'connection'.
That is why for securing a large bank loan or for stopping punitive actions for failure to repay the same later, the parties concerned first remain on the look out for proper and effective 'connections'.
One should feel pity for the Hall-Mark Managing Director Tanvir Mahmud who is now rotting behind the bar for alleged embezzlement of a large sum of money belonging to the state-owned Sonali Bank.
Tanvir had employed a crude approach in collusion with a section of bank officials to siphon off the fund. He too had used some 'connections' to secure the loans. But the connections were not that strong and not so close to the power centre. So he got himself caught and none had come to his rescue in a very difficult time.  
But the skilled and sophisticated players do things differently and employ more powerful and effective connections to get things done. They borrow from a number of banks in large amounts and then default on paying the loans.
They have schemers on their payroll. The schemers would devise effective techniques, loan restructuring being the latest one, to erase their names from the list of defaulters. 'Connections' remain the key to their successes every time. These people do not have to face court cases or go behind the bar as has happened in the case of crude schemer Tanvir of Hall-Mark.  
There are other instances. The state-owned BASIC Bank Ltd is one. Following siphoning off nearly Tk 40 billion under the leadership of its immediate past chairman, the bank is almost broke.
The government would have to inject a large amount of fund to keep the bank afloat. Following the detection of major financial irregularities, some officials of the bank in question are facing punitive actions. But the chairman until now has remained unscathed for he is fortunate to have befitting 'connections' that would protect him.
When new banks are born because of political connections, large loans are granted or large loan defaulters go unscathed for the same reason, it is hard to ensure the desired level of discipline and fair play in the country's financial sector.
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