Page 72 - ICE BUSINESS TIMES January 2020

WHY SHOULD YOU CARE? provisioning. If profit is being reasonable rates. This might RIGHTING THE WRONG
NPL is a reflection of the long-term eaten up by NPL, then banks also result in borrowers not A comprehensive resolution
financial health and sustainability cannot keep provisions for long getting loans due to liquidity will require the government to
of the banking sector. There are and will eventually default on crunch. A soaring NPL may bite the bullet and do a proper
four reasons behind this: their obligations and go out of also exacerbate the liquidity restructuring of the banking
1. Banking is a business. Unless business. The economic crisis and banks’ ability to pay sector based on a sound
they earn money on their loans, consequence of this will be the money to its depositors, diagnostic analysis of NPLs of
they will not be able to stay in devastating. which can potentially trigger both public and private banks
business. So, interest earned on 4. Lastly, there is considerable the banks’ reputational risk. and associated institutional
total assets loans is a critical global evidence that the arrangements for regulation
determinant of a bank's financial health of the banking HOW IS BANGLADESH BANK and supervision. This
financial sustainability. sector is negatively correlated RESPONDING? diagnosis should be done by a
2. If NPL grows and banks face a with the size of gross NPL. So, In January 2015, a number of team of experts who are
threat to their profitability, they the long-term viability of a 15 big group with more than Tk independent and not involved
will respond back by raising the sound banking system depends 500 crore loans in default with the present banking
interest on loans that will on keeping a tight lid on gross enjoyed the facility getting their system.
penalize good borrowers and NPLs. loans rescheduled. A total A short-cut fix through loan
hurt economic growth. Furthermore, the huge amount of amount of Tk16,410 crore restructuring and redefinition
3. Provisions can only be kept if NPL will accelerate the operating loans were rescheduled at that of prudential norms will be
banks earn money. The larger costs of the banks, which will time. Officials said the central like applying band-aid to a
the size of NPL, the larger the increase the lending rates. This bank decided not to reschedule writ with the High Court in favor of cancer wound. Redefinition of
amount of required scenario will make it difficult for loans below Tk 500 crore prudential norms that are
the good borrowers to get loans at though the defaulters filed a their demand. presently aligned to
One of the conditions of the international norms can also
rescheduling facility was that the jeopardize the international
borrowers would be marked credit risk perception of
defaulters, and the benefit would Bangladesh and must be
be cancelled if they failed to pay avoided. The solutions to the
two consecutive instalments. In NPL problem will need to make
such cases, they would also be a distinction between the stock FARMERS BANK SCANDAL bank's capital base. The law set
barred from any loan rescheduling of NPL and the future flow. The The Farmers Bank became a hotbed the single borrower exposure
benefit in the future. The special growing stock of NPL suggests for financial irregularities, just limit to 10%.
rescheduling facilities offered to This move by Bangladesh Bank has that the stock problem cannot three years after commencing Currently, Janata Bank has the
the big defaulters did not do much sent out a clear message to the be resolved unless the flow operations, near the end of 2017. most default loans, worth
to curb NPL. Of the 11 business borrowers that it is better to default problem is addressed. Established in 2013, the bank was Tk14,376.46 crore. Once
groups, five have become than to service the loans regularly. involved in siphoning off more considered a strong performer
defaulters again while most of the Moreover, the burden of NPL has than Tk3,500 crore, according to among the state-owned banks,
11 groups had repeatedly been often been transferred to the Scams A Plenty Bangladesh Bank. Currently, its Janata Bank is going through
defaulting on repayment. The taxpayers through treasury The roles of the government, NPLs account for 58% of its total troubled times, former
overall default loans of these 11 transfers. This is not only particularly the Ministry of outstanding loans. Bangladesh Bank Governor
groups ballooned from Tk 15,180 unsustainable as tax revenues Finance and Bangladesh Bank Muhiuddin Khan Alamgir, board Salehuddin Ahmed has said
crore in 2015 to Tk 17,103 crore in become increasingly constrained, it were largely limited to appease chairman, and Md Mahabubul aforementioned financial there is no plan of action in
2019. is also unethical. In Bangladesh bank owners, as they Haque Chisty, chairman of the institutions were appointed as sight to solve the crisis.
Despite the disappointing results where there are still millions of succeeded to amend The Bank audit committee, were forced to directors of The Farmers Bank. Salehuddin cited a lack of good
from the previous rescheduling poor, using tax revenues to bail out Company Act , 1991, reduce resign from their respective posts governance and widespread
policy, Bangladesh Bank introduced public banks because they have corporate tax, and manipulate in November, 2017—following corruption as major reasons for
a circular on 16 May 2019 which loaned out depositor's money to the pledged 9 % lending rate. corruption allegations. As a result, JANATA BANK LOAN SCAM the current dire situation of
allowed rescheduling of credit bad borrowers who often tend to be In 2018, banks have no role in from January 2018, depositors In August, 2018, a loan scam Janata Bank. “The
facilities of defaulter borrowers in very rich and powerful would seem stemming soaring NPLs, started withdrawing money from perpetrated by state-owned Janata politically-appointed bank
more favorable terms than the to violate all accepted norms of instead, loan scams of a large the bank, prompting the central Bank came to light. A Bangladesh directors often influence bank
credit facilities enjoyed by ethics and morality. magnitude resurfaced in the bank and the government to step in Bank report revealed that Janata officials to sanction loans
borrowers who have been repaying Finally, restructuring is a means to banking sector. Amid a and rescue the organization. Later, bank had lent more than Tk10,000 which cannot be recovered
regularly. The circular allowed avoid the pain of an otherwise proliferation of scheduled four state-owned commercial crore to AnonTex and Crescent later. Additionally, loyalty to
defaulters to pay only a 2% down good borrower facing unforeseen banks, many of which have banks—Sonali Bank, Janata Bank, Group without complying with the vested groups, corruption, and
payment to reschedule their loans contingencies. It is not a solution been incurring losses for years, Agrani Bank, and Rupali central bank's single borrower lack of experience—among a
to avail a 10-year loan repayment to the NPL problem. Unless it is the BB stunned the sector by Bank—and the Investment exposure limit criteria. section of bankers—worsens
period with a one-year grace addressed at the roots by resolving giving permission to another Corporation of Bangladesh bailed Janata Bank lent Tk5,500 crore to the situation,” he further
period. The rate of interest for all the weaknesses in portfolio new bank, Community Bank of out the bank, buying its equity AnonTex—in clear violation of the added.
these defaulters have been capped quality, the NPL problem will Bangladesh, to operate. shares worth Tk715 crore. Bank Company Act 1991—as it Other ‘noteworthy’ scams
at 9%. re-emerge. Managing directors of all five of the provided 25% of the state-owned includes the Basic Bank and

66