Continuous increase in bad loans is very alarming not only for the banking sector but also for the entire economy, ICC Bangladesh President Mahbubur Rahman said.
"Because of bad loans, banks are faced with capital deficit. We have observed that the government has been providing recapitalisation funds to the nationalised banks to meet capital adequacy ratio set by the Bangladesh Bank," he said at a workshop on 'Capital and Credit Risk Distribution', organised by ICC Bangladesh, on Sunday.
According to banking sector experts, banks do not have enough technical expertise to properly analyse the loan files. Moreover, the defaulters were not being punished as the bankruptcy court is out of commission and this encouraged people to become debt dodgers, said Mahbubur Rahman.
It may be mentioned that non-performing loans (NPL) in Bangladesh's banking sector, according to reports published by the Bangladesh Bank, have surged over Tk 800 billion ( about US$10 billion). The figure would have been much higher if bad loans had not been written off, which is around Tk 450 billion, said a press statement.
As a result, the banks are having difficulties in providing credit to those who are good borrowers for expansion of their business or to new entrepreneurs. Besides, the situation is similar in the state-run specialised banks, added Mahbubur Rahman.
Muhammad A (Rumee) Ali, ICC Bangladesh Banking Commission Chairman and CEO, Bangladesh International Arbitration Centre, in his address said Bangladesh is going forward to achieve middle-income status by 2021 which created huge need for capital requirement in infrastructure sector. But because of bad loans, banks are suffering from capital inadequacy.
He told the participants (bankers) that managing the capital is the utmost important duty.
He also mentioned that alternative dispute resolution and mediation will be very much useful to reduce the bad debt of the commercial banks.
Mr. Anis A Khan, Chairman, Association of Bankers Bangladesh Limited, and Managing Director & CEO, Mutual Trust Bank Limited, was the guest of honour at the workshop.
He said that the world trade is moving towards digitisation and as such Bangladesh has to prepare itself to keep pace with the international trade.
“The bankers of our country must upgrade themselves through modern tools and rules. In order to become a good and efficient banker, one should experience the trade finance in the banking career”, he added.
He also said that the Association of Bankers Bangladesh has been actively working with the Bangladesh Bank to develop the banking sector and create a corporate culture in the sector,
Mr. Kah Chey Tan, immediate past Chairman of ICC Banking Commission and founding Chairman of CCRM, in his presentation said banks are facing increasing funding costs. Securing stable cheap funding is a challenge.
He mentioned that global trade finance gap currently stands at an estimated US$1.6trillion i.e. there is a substantial trade opportunity not being met by traditional sources.
He said that facilitating trade has become much more expensive for banks on account of enhanced know your customer (KYC) and anti-money laundering (AML) requirements. A recent Thomson Reuters survey found that financial institutions are now spending an average of US$60m per annum on KYC procedures, with some spending up to US$500m annually on compliance with KYC and Customer Due Diligence (CDD).
Banks are also required to hold much higher levels of capital as a result of Basel III norms impacting their flexibility to put on more assets which meet the cost of capital - this has impacted the trade business of banks. Many banks have been forced to refocus their activities, leading to a withdrawal from certain markets. This "de-risking" has primarily impacted SMEs in developing markets in particular, with many struggling to access finance. As per a 2016 survey by the Asian Development Bank (ADB) more than half (56 per cent) of all SME trade finance proposals are rejected, he added.
Capital and Credit Risk Manager (CCRM) Chairman Kah Chey Tan, CEO Ka-Kit Man, and Vivek Gupta, Head of Product Management, conducted the daylong workshop attended by 118 bankers and two insurance officials.
Bank Asia Managing Director Md Arfan Ali, ICC Bangladesh Secretary General Ataur Rahman and CCRM Chairman Kah Chey Tan distributed the certificates.
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