Suffering from a prolonged drought as far as domestic investment is concerned, most banks are more or less clueless about their surplus liquidity.
The number of commercial banks in the country, many tend to believe, is more than what the market needs. When the grand-alliance government granted permission to its ‘own’ men to open new banks after coming to power in 2009, experts and stakeholders as well feared that the there would be a fierce competition among the old and new banks to grab funds and the new entrants would trail far behind.
But their fear, at least for now, appears unfounded for the chests of both old and new banks are overflowing with deposits. In fact, they are having serious problem with excess funds the demand for which has been on the wane in recent years.
The excess liquidity is considered yet another addition to the list of problems facing the banking sector. Suffering from a prolonged drought as far as domestic investment is concerned, most banks are more or less clueless about their surplus liquidity. Both private and public sector banks are already in dire straits with their bulging stock of non-performing loans (NPLs). However, the problem is acute in the case of the state-owned banks.
The public sector banks are, however, a bit unlucky as far as the media focus on NPL is concerned. The classified loan situation with these banks has turned worse and a couple of them are facing substantial capital shortfall. Under the circumstances, the government has been forced to make available a considerable amount of taxpayers’ money to a number of banks under its ownership to help compensate for the erosion in their capital base, at least, partially. All these developments have made the public sector banks the centre of media attention.
A couple of loan scams of unprecedented scale in the state-owned Sonali Bank and the BASIC Bank and the government’s unwillingness to expose a few key suspects in those scams have made the public sector banks more vulnerable to media bashing.
But the state of affairs with a number of private sector banks as far as their classified loans are concerned is not beyond worries. The NPL in private banks has been rising after somewhat a manipulated fall in its volume of at the end of calendar year 2013. The central bank, to be honest, had offered the banks an opportunity to window dress their NPL the way they liked.
Only a week before the end of the year 2013, the Bangladesh Bank (BB) had issued a directive relaxing the loan rescheduling facility for six months until June 30, 2014. Banks were allowed to reschedule loans by fixing the rates of down payment and time-limit for repayment on the basis of ‘customer-banker’ relationship.
The banks were given, what many preferred to call, the ‘breathing space’ in view of the loss of business due to ‘unprecedented’ political trouble centering the national polls in the latter half of 2013.
The ‘relaxation’ had offered the banks the opportunity to window dress their respective NPLs and present relatively healthy financials for the year 2013. The size of the NPL was 13% in September, 2013. It had come down to less than 10%—8.93%, to be exact—after putting into effect a relatively relaxed loan-rescheduling facility. The central bank had to digest criticism for offering the facility the actual effect which was very much short-lived.
Interestingly, according to banking sector insiders, the relaxed loan rescheduling facility though officially ended on June 30, 2014, is still being availed by banks, occasionally. The BB pretends not knowing it.
The average NPL of the total banking system, as of June last, was over 10%, that too after lots of rescheduling. Banking insiders say the NPL estimates in the case of most private banks do not represent the actual picture. The actual size of NPL in a number of banks would be two to three times more than what is officially shown. Rigorous audit by foreign firms might help one get the actual picture of the financial health of local private as well as public sector banks. A number of banks avoid inclusion of a number of large classified loans in their financials, at times, very much within the knowledge of the officials concerned of the central bank.
Had the banks included the actual volume of NPL in their balance sheets, the provisioning need would have left a good number of them in the red.
What can be said in a nutshell is that the financials of most banks in the country do not depict the true picture of their individual financial health.
Against this backdrop, the central bank has rather unwillingly come out with a ‘loan restructuring policy’, apparently to help a section of big borrowers in distress with their soured loans.
In fact these borrowers, including one business house that has earned infamy as a chronic bank loan defaulter and initiated the idea of loan restructuring, have exploited all the avenues of loan rescheduling and are now left with no other option.
The business house in question mooted the restructuring idea and used political connections to persuade the central bank to announce the loan restructuring guideline.
The Bangladesh Bank, given the experience the public sector banks of neighbouring India is having with the restructured loan facilities, had no reason to offer the same to the big loan defaulters in Bangladesh. Certainly, it had given the facility under pressure. But banking sector people in the know of things are almost certain about failure of the move.
Bangladesh has banks more than what it needs. The quality and background of the sponsors barring a few are not helpful to the development of a healthy banking sector. The top management teams in the public and private banks, in many cases, are not adequately efficient to handle modern day banking. However, the situation, in terms of quality of manpower, has been improving of late.
The central bank and banks, both private and public, apparently, are not faithfully sticking to the path that helps the sound growth of the banking sector. The quality of governance in the sector is not up to the required standard. However, it is hard to look at the sector in isolation. The state of overall governance in the country has a bearing on the quality of governance in various other sectors of nation life.
The writer is a senior journalist. He can be reached at zahidmar10@gmail.com
