The amount of loans in default in the banks of the country is now estimated at Tk 930 billion (93,000 crore). Out of this an amount of Tk 340 billion (34,000 crore) has been written off. Loan default has increased due to the state-owned banks. About 25 per cent of current loan disbursed is in default. Banks could not reduce the amount of default even after taking many steps. Up to October last, the amount of loan default of the state-owned Sonali, Janata, Agrani, Rupali and Basic banks stood at Tk 270 billion (27,000 crore): Sonali Bank - Tk 70 billion (7,000 crore), Janata Bank - Tk 60 billion (6,000 crore), Agrani Bank - Tk 50 billion (5,000 crore), Rupali Bank - Tk 60 billion (6,000 crore).
The Managing Director of Sonali Bank said that steps were taken to recover loans. Priority was given to realise old loans. Recovery rate has increased in Sonali Bank.
Loan default situation is very bad in three specialised banks of the government. About 35 per cent of the loans of these banks are in default: Krishi Bank - more than Tk 40 billion (4,000 crore), Rajshahi Krishi bank -Tk 20 billion (2,000 crore) and Bangladesh Development Bank - more than Tk 25 billion (2,500 crores).
On the other hand, 39 private sector banks have defaulted loans of Tk 240 billion (24,000 crore) which is 7.0 per cent of the amount disbursed. Nine foreign banks account for defaulted loans of Tk 20 billion (2,000 crore).
A culture has developed to take loans and not to return it. Many banks are apparently indulging in irregularities. They are submitting ingenious statements to the Bangladesh Bank. The central bank has fined 17 banks for allegedly furnishing false information. The commercial banks have been warned not to submit false statements.
The banks try to recover loans through discussion with the borrowers and litigation in courts. This is a very lengthy process. If irregularities during disbursement of loan cannot be rectified, banks cannot come out of loan default. Loan default is having a negative impact on the banking sector. Bangladesh Bank is continuously pressing for improving loan recovery.
Five state-owned banks are seeking immediate capital replenishment worth Tk 34.97 billion. Sonali, Rupali and Janata banks and two specialised banks - BASIC Bank and Bangladesh Krishi Bank - are waiting for capital replenishment. Scam-hit Sonali and BASIC are pressing hard to get Tk 21,06Â billion to make up for their capital shortfalls. On the other hand, Janata, Rupali and Bangladesh Krishi Bank together want Tk 13.91 billion to meet their Basel requirement. The Finance Division released Tk 12.9 billion in the past fiscal year for capital replenishment of these banks.
Past experience shows that the banks remain sound for a few months after replenishment and then again fall back on empty coffers.
The number of loss-making branches of state-owned banks stood at 300 in June this year. In January, the number was 175. At the moment the number of loss-making branches has exceeded 500. The Finance Minister has given directive to make these branches profitable by March next. Government's revenue earning from banks is coming down and standard of service of these banks is declining.
According to London-based BMI Research, the state-owned banks have been losing their market share to private sector players over the years. Various efforts have been made to turn around the poorly managed state-owned banks but progress has been slow. Non-performing loans are predominantly concentrated among the state-owned commercial and specialised banks -the ratio of bad loans stands at 22.2 per cent and 32.8 per cent respectively. More than 80 per cent of non-performing loans are in the bad loan category which are typically unrecoverable.
The BMI analysis says it sees little prospect for improvement in the loan default situation over the short term as reforms in state-owned banks are a long-drawn process rather than a one-shot exercise. Profitability in Bangladesh's banking sector, as measured by return on assets and return on equity, was as low as 0.4 per cent and 4.9 per cent respectively in June 2015 while the return on assets for Filipino banks averaged around 1.2 per cent and on equity around 10.1 per cent in the third quarter of 2015.
Over the near term, the issues surrounding non-performing loans are likely to remain unresolved. BMI Research believes an improvement in the political environment, following the abatement of political conflict between two major political parties may help spur credit growth which will be positive for profitability.
Bangladesh's banking sector remains one of the weakest in the region because of weak asset quality, poor capitalisation and low profitability particularly in the state-owned banks. BMI Research maintains a bearish view of the banking sector as profitability and solvency will remain key challenges because of weak standard of corporate governance and under-developed risk management system.
The writer is an economist
and columnist.
jamaluddinsyed23@yahoo.com.au
Loan default crippling state-owned banks
Syed Jamaluddin | Published: December 20, 2015 00:00:00 | Updated: February 01, 2018 00:00:00
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