Page 76 - ICE BUSINESS TIMES January 2020

WHY SHOULD YOU CARE? provisioning. If profit is being reasonable rates. This might RIGHTING THE WRONG Hallmark incidents. The common
NPL is a reflection of the long-term eaten up by NPL, then banks also result in borrowers not A comprehensive resolution factors in most of these scams were
financial health and sustainability cannot keep provisions for long getting loans due to liquidity will require the government to appointment of management based
of the banking sector. There are and will eventually default on crunch. A soaring NPL may bite the bullet and do a proper on political considerations rather
four reasons behind this: their obligations and go out of also exacerbate the liquidity restructuring of the banking than based on expertise or
1. Banking is a business. Unless business. The economic crisis and banks’ ability to pay sector based on a sound experience, concentrated power of
they earn money on their loans, consequence of this will be the money to its depositors, diagnostic analysis of NPLs of the Board of Directors, widespread
they will not be able to stay in devastating. which can potentially trigger both public and private banks flouting of Bangladesh Bank's core
business. So, interest earned on 4. Lastly, there is considerable the banks’ reputational risk. and associated institutional risk management guidelines by
total assets loans is a critical global evidence that the arrangements for regulation bank officials and, in extreme Crony capitalism is allowing
determinant of a bank's financial health of the banking HOW IS BANGLADESH BANK and supervision. This cases, forgery and other fraudulent loans to kith and kin of
financial sustainability. sector is negatively correlated RESPONDING? diagnosis should be done by a practices. politicians and business
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 It's Been A Year
threat to their profitability, they the long-term viability of a 15 big group with more than Tk independent and not involved HOW DID BANGLADESH BANK conglomerates backed by of Discontent
will respond back by raising the sound banking system depends 500 crore loans in default with the present banking RESPOND? those in power rules the In an interview with the
interest on loans that will on keeping a tight lid on gross enjoyed the facility getting their system. In the wake of news of massive roost. In short, they hold the Economist, Badiul Alam
penalize good borrowers and NPLs. loans rescheduled. A total A short-cut fix through loan scams, Bangladesh Bank acted as if Majumdar, founder of
hurt economic growth. Furthermore, the huge amount of amount of Tk16,410 crore restructuring and redefinition it were taking steps to curb the banks in ransom. Shujan, an anti-corruption
3. Provisions can only be kept if NPL will accelerate the operating loans were rescheduled at that of prudential norms will be situation. Investigations were pressure group, has said,
banks earn money. The larger costs of the banks, which will time. Officials said the central like applying band-aid to a carried out by the Bangladesh Bank “It’s like the Midas effect in
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 and cases have been referred to the easy to get loans from banks the reverse. Everything the
amount of required scenario will make it difficult for loans below Tk 500 crore prudential norms that are Anti-Corruption Commission (ACC) government controls, says Biru government touches turns
the good borrowers to get loans at though the defaulters filed a their demand. presently aligned to for prosecution. In some cases, the
One of the conditions of the international norms can also bank officials responsible for Paksha Paul, a former chief not to gold, but rather from
rescheduling facility was that the jeopardize the international flouting laws and guidelines were economist at the central bank, gold to dust.” He is referring
borrowers would be marked credit risk perception of silently removed from the Bank but but face little penalty for to the countless scams, NPLs
defaulters, and the benefit would Bangladesh and must be were not subject to criminal defaulting and other guffaws faced by
be cancelled if they failed to pay avoided. The solutions to the investigation. In other cases, Public sector banks fulfil an the government over the last
two consecutive instalments. In NPL problem will need to make nothing was done. indispensable social necessity few years.
such cases, they would also be a distinction between the stock FARMERS BANK SCANDAL bank's capital base. The law set For instance, in the case of the and large numbers of poor people While I would not be inclined
barred from any loan rescheduling of NPL and the future flow. The The Farmers Bank became a hotbed the single borrower exposure BASIC Bank, where TK5,000 crore need access to finance in a to even touch this mess with
benefit in the future. The special growing stock of NPL suggests for financial irregularities, just limit to 10%. was swindled with/without the help country like Bangladesh. The a pole, the article demands
rescheduling facilities offered to This move by Bangladesh Bank has that the stock problem cannot three years after commencing Currently, Janata Bank has the of the banks chairman, Sheikh government must not be allowed that recommendations be
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 Abdul Hye Bachchu. In Oct 2019, to abdicate its responsibility to provided to improve the
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 ACC declared their failure in the common people. It has to end position of Bangladesh Bank.
groups, five have become than to service the loans regularly. involved in siphoning off more considered a strong performer gathering any information against this unholy nexus between the Thus here are my few chosen
defaulters again while most of the Moreover, the burden of NPL has than Tk3,500 crore, according to among the state-owned banks, Bachchu. This becomes even less of State and big capital to revive the points:
11 groups had repeatedly been often been transferred to the Scams A Plenty Bangladesh Bank. Currently, its Janata Bank is going through a surprise when you realize that in Indian banking system to the · Corporate governance
defaulting on repayment. The taxpayers through treasury The roles of the government, NPLs account for 58% of its total troubled times, former 2009, the government appointed needs of the majority of the should be strengthened and
overall default loans of these 11 transfers. This is not only particularly the Ministry of outstanding loans. Bangladesh Bank Governor had Bachchu as chairman and Kazi population. careful due diligence followed
groups ballooned from Tk 15,180 unsustainable as tax revenues Finance and Bangladesh Bank Muhiuddin Khan Alamgir, board Salehuddin Ahmed has said Fakhrul Islam as managing director in lending decisions by
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 of BASIC Bank. HOW DID BANGLADESH BANK banks. In easier terms, it
2019. is also unethical. In Bangladesh bank owners, as they Haque Chisty, chairman of the institutions were appointed as sight to solve the crisis. RESPOND? means that all cronyism
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 Curse of Cronyism The Bangladesh Bank decided to needs to end when it comes
from the previous rescheduling poor, using tax revenues to bail out Company Act , 1991, reduce resign from their respective posts governance and widespread promote crony capitalism by to borrowing from banks.
policy, Bangladesh Bank introduced public banks because they have corporate tax, and manipulate in November, 2017—following corruption as major reasons for Crony capitalism with loans to kith recommending amendment of the · State Owned Banks
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 and kin of politicians and business Bank Company Act, 1991 which boards of directors be
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 conglomerates backed by those in allowed the tenure of board of composed of competent
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 power rules the roost. In short, directors to increase from 6 years professionals, instead of
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 they hold the banks in ransom. to 9 years, and up to four family those appointed on political
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 This grotesque magnanimity to the members would be allowed to be considerations alone.
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 corporates is being attempted to be on the Board, instead of the · The choice of secured
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 compensated by recapitalization of earlier two per family. In the collaterals is important for
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 banks through public funding, context of an already chaotic banks to mitigate the risks
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 which in other words means that banking sector suffering from associated with loans. To
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 the ordinary Bangladeshis would chronic corporate governance reduce the default risk, fair
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 be bailing out the banks that are failures, caused by, among others, pricing of collaterals through
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. still being plundered by the concentrated powers of the board competent accounting firms
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 corporates. People with political of directors, this amendment was with global best practices is
at 9%. re-emerge. Managing directors of all five of the provided 25% of the state-owned includes the Basic Bank and connections not only find it too particularly absurd. necessary.

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