The financial sector reform programme has greatly and largely helped financial institutions (FIs) keep strict credit management discipline. Particularly after introduction of the Credit Information Bureau (CIB) of the Bangladesh Bank, the FIs when considering any credit proposal check the list of defaulter borrowers in the country to be sure their new client is not a defaulter.
The pressure from outside and corruption inside are the root causes of the increase in classified loans (CL) that rose many times over the years. During the period of 2012 to 2013 the CLs increased by 17.50 per cent and such an enormous increase in CLs never happened before. This unusual increase in CLs is due to political pressure, inside corruption, willful silence of the concerned quarters and the indifference of board of directors.
It is not expected that a bank will achieve a 100 per cent loan recovery rate. The internationally accepted rate of CLs is 2.50 per cent. In Bangladesh it is more than 34 per cent. But recently all banks have rescheduled their CL portfolios as per a central bank circular. As a result, CLs of the FIs have declined to a great extent. But the time that has been allowed to repay the loans will not be enough for the defaulter borrowers to get out of the troubled waters.
Bankers, who have joined banks during the 1960s were not familiar with the words Classified Borrowers, Classified Loans, Special Mentioned Account-SMA, Doubtful-DF, Bad and Loss-BL. After the Liberation, the Bangladesh Bank possibly in the year 1979 issued a confidential letter enclosing therewith a list of default/bad borrowers in Bangladesh. As far as this scribe's memory goes, the list contained 19 names, out of which one borrower was a woman. Now the number of classified borrowers might have crossed few hundred thousand.
Since 1982 the default loan culture has developed in the banking sector at an alarming rate and the central bank miserably failed to stop the growth. An article of this scribe, titled Bank Sucker Blood Sucker, was published in 1992 in a number of national dailies. It dwelt on default loans of banks. Since it was the first information before the public about the bad loan culture in Bangladesh, the defaulter borrowers became angry and discussed the issue at a public forum arranged by a trade body and subsequently lodged a complaint against this scribe with the central bank. Resultantly he was summoned to the central bank and cautioned verbally not to write any such article in future that might create a problem for him. But God is always great. Next day the then President in a meeting on financial matters referred to the article and appreciated the context. The compliment from the highest authority encouraged this scribe to write articles one after another on default loans such as "Pulling Banks Out of the Woods," "Character First Credit Next," "A Prescription to New Private Banks," "Willful defaulters should be classified and blacklisted," "Willful Defaulters: The Bane of Banking," "Characteristics of Common Bank Borrowers," "A Strong and Powerful Tribunal is needed for realising Classified Loans," "Financial Discipline Needed," and "Evaluation of Credit Proposal and 5Cs thereof," and many more.
After introduction of the CIB in 1989 by the Bangladesh Bank, the bad loan culture has shown a downward trend. But during the last few years the CIB antibiotic has seemingly lost its efficacy in fighting the default loan culture. To cure the disease of bad loans, the Bangladesh Bank prescribed a number of medicines for proper loan processing and effective credit analysis in order to drive down the growth of classified loans. But in the recent past it proved a futile exercise and all honest efforts of the central bank were in vain. Unscrupulous and dishonest quarters won and financial scams involving Hallmark, Bismillah, Fare Trading etc. took place leading to banks swindled out of a big amount of money.
This scribe in his articles on many occasions urged bankers to make any credit analysis about their clients thoroughly and follow the 5Cs, CAMEL and SWOT. Recently one Mr. Tauhidul Alam Khan has expanded 5Cs to 11 for an exquisite credit analysis before considering any credit proposal. He has brilliantly expressed his mind. But our suggestions, thinking, recommendations etc. will never work, unless and until all the interested parties come up with a positive approach. But regretfully all the big cramps happened thanks to corrupt, dishonest and unscrupulous bankers who did it in their own interest and to satisfy their politicians. Without any political influence such a big plunder of bank money cannot take place. Since political involvement was there, no punitive action has been taken so far. In fact, banks have been facing political pressure over disbursement of loans since 1982. The loans disbursed under political pressure are never repaid and get stuck up.
Banks are the custodians of depositors' money and they must pay back the money on demand by their clients and depositors. The default loan culture cannot continue as a regular phenomenon for an indefinite period. The concerned authorities must take some appropriate actions to stop this malpractice at any cost. However, this scribe has some more suggestions which can be followed alongside the proper and strong credit analysis before disbursement of a loan:
1) Bankers must be honest, sincere and dedicated.
2) The boards of directors of state-owned banks must consist of honest personalities like highly-educated teachers, economists, retired bureaucrats, retired army personnel and retired high officials of banks. But there should not be any politician.
3) A high-powered Credit Counseling Committee (CCC) headed by the Credit Management Department should be formed in each of the banks. After getting a loan proposal, the CCC will hold a meeting with the applicant. Based on the threadbare meeting the CCC will try to understand the mindset of the borrowers, especially why they have applied for the loans, the purposes of the loans, actual motive, capacity, experience and behaviour of the borrowers, marketability of the product produced by the loan applicant, credit worthiness, etc.
4) In Bangladesh, most of the borrowers are greedy. They want to obtain loans from FIs at any cost. Whenever any new bank is opened, the unscrupulous borrowers make their first attempts at snatching money from those FIs. The CCC as mentioned above must find out the motive of the borrower in the very first meeting with the applicant.
5) A team headed by a senior member of the CCC must visit the factory and office of the applicant.
6) Information about the applicant as to his character, credibility, human behaviour, family status, etc. should also be collected from the outside sources secretly.
7) The bank officials concerned must visit the client's office and factory regularly and keep in constant touch with the applicant, if the loan is considered and disbursed.
8) Documentation should be completed in all respects by the legal department before disbursement of the loan.
9) A perfect and exquisite credit analysis should be made in all respects about the applicant.
Loan cases should be handled by the management on the basis of the merit of the loan proposal after a pragmatic analysis of the proposal in light of suggestions made in this write-up. Honest, sincere, experienced, courageous and dedicated management is most important for running a financial institution efficiently. If a management of a bank has this quality, it can surely achieve its desired goal.
nasiruddin_aahmed@yahoo.com
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