[🇧🇩] Banking System in Bangladesh

No bank will be closed
Salehuddin says



Although some banks are going through a crisis, no bank will be shut down, Finance Adviser Salehuddin Ahmed said as he urged depositors not to panic.

He made the remarks while addressing a press conference at the Secretariat yesterday, reiterating the stance that Bangladesh Bank Governor Ahsan H Mansur had taken the prior day.

"Some banks are crawling while others such as Islami Bank have recovered already. But I want to assure depositors that no bank will be shut down," Ahmed said during a media briefing to mark 100 days of the interim government.

The banking sector in Bangladesh has been facing a series of crises in recent years, marked by rising non-performing loans (NPLs), liquidity shortages, and governance challenges.

The banking sector has been facing a series of crises in recent years, marked by rising NPLs, liquidity shortages, and governance challenges

Bad loans hit a record Tk 284,977 crore at the end of September, fuelled by weak enforcement of regulations, political interference, and inadequate credit risk assessment during the regime of the recently ousted Awami League-led government.

Some private Shariah-based banks and a few state-owned banks were at the centre of controversy, becoming embroiled in massive loan irregularities that were often linked to companies and borrowers with affiliations to the previous government.

This eroded public confidence and created operational challenges, including cash shortages.

Highlighting various irregularities under the past government's watch, Ahmed said policies taken at that time were not bad, but they were not implemented properly.

However, after taking charge, the interim government has assumed the responsibility to salvage the banking sector and efforts are being made to this end, the finance adviser said.

For example, ailing banks are getting liquidity support from the inter-bank money market, he said.

"Depositors kept their hard-earned money in banks so efforts will continue in order to ensure that deposits are unaffected," he added.

Ahmed also said various reforms to the banking sector have been initiated, adding that laws are being amended and that reforms would be made to the central bank as well.

He stressed that the job of the central bank is only to supervise, inspect and audit.

"I heard audit reports were previously sent to the central bank governor and deputy governor for approval. And if those reports impacted any influential person, then they would be scrapped. That should not happen. Measures should be taken according to the findings of the audit report."

Ahmed also urged businessmen to move ahead without fear.

He said that some people are saying that businessmen are fearful but added that honest entrepreneurs should not be afraid. Those involved in irregularities have reason to be scared although many have already fled the country, he added.

During the briefing, the finance adviser also addressed the impact on small investors in the stock market, acknowledging their losses from investments in poor performers. Compensation measures are being considered, according to Ahmed.

Finance Secretary Md Khairuzzaman Mozumder, Financial Institutions Division Secretary Nazma Mobarek, Economic Relations Division Secretary Md Shahriar Kader Siddiky and National Board of Revenue Chairman Md Abdur Rahman Khan were present at the press conference.​

Helping banking sector stand on its feet
Published :
Nov 19, 2024 22:28
Updated :
Nov 19, 2024 22:28



Disbursement of loans bending rules to businesses enjoying political favour during the previous regime had been behind stiff rise in non-performing loans (NPLs) or bad debts in the banking sector. Though substantial amounts of funds were thus siphoned from the banks using fictitious names of borrowers and relaxing banking rules for the purpose, those were shown as regular. Now, the amounts so robbed have added to the existing NPLs. However, the exact amount of those NPLs could not be known during the previous regime due to massive data manipulation and under-reporting by the Bangladesh Bank (BB) authority of that time as well as the management of those looted banks for obvious reasons.

Now that the present BB authority is transparent about figures and has started using international standards in counting defaulted loans, the total NPLs figures, unsurprisingly, have registered a sharp rise. To be more specific, now loans are being classified as NPLs three months (the grace period) after those become overdue, whereas, earlier, the grace period was six months. As the September data of the BB showed, the NPLs have surged to a staggering sum of Tk2.85 trillion. Notably, this is a rise by about 96 per cent recorded on September30, 2024 over what it was at the end of December 2023 at Tk1.55 trillion.

Obviously, observers including experts have expressed grave concern about this alarming rise in default loans warning of its deleterious impact not only on the banking sector, but also on the entire economy. Evidently, the situation calls for carrying out a comprehensive audit of all the loans advanced so far by both the state-owned and private commercial banks to uncover the exact amount of NPLs and losses sustained by the banking sector. Also, efforts should be on to find out those who benefited from the defaulting loans and bring them to justice. If necessary, arrangements may be made to hire reputed international firms to perform the audit to assess the exact position of the NPLs and the losses thus suffered by the banks.

At the same time, to recover the losses, legal measures should be taken to confiscate property of the fraudulent bank defaulters. However, while taking such penal measures against wilful loan defaulters, care should be taken not to punish genuine businesses who failed to repay their loans in time due to the losses made during the floods followed by political upheaval and other issues born of various uncertainties including high inflation. Since a significant portion of this defaulted loan money has been taken outside the country through laundering, to retrieve those lost bank assets from foreign lands, the government should seek cooperation of the governments of the destination countries. In this regard, the chief adviser of the incumbent interim government, Dr Muhammad Yunus, might well use his enormous goodwill and influence at the international level to bring back the money lying in foreign banks and offshore accounts.

The good news is that multilateral lending agencies and financiers like the International Monetary Fund (IMF), the World Bank (WB) and the governments of the USA and the UK have already given word to help Bangladesh recover its money thus stolen and taken illegally abroad by fraudulent businesses and loan defaulters. Hopefully, with the reputed financial experts running the affairs, the interim government should be able to bring down NPLs to a tolerable level and recover a substantial portion of losses the banking sector incurred even within the limited time it has in its hands.​

BB asks banks to rebuild image


Photo: Star/File

Bangladesh Bank yesterday asked banks to find a way to rebuild the image of the country's banking sector in the international arena as Moody's recently downgraded Bangladesh's long-term ratings to B2 from B1.

The ratings agency also changed the outlook of Bangladesh to negative from stable and downgraded Bangladesh's banking sector to "very weak" from "weak".

The central bank's instruction came during a meeting between Bangladesh Bank Governor Ahsan H Mansur and the Association of Bankers, Bangladesh (ABB), a platform of the top officials of banks, at the central bank headquarters.

Selim RF Hussain, chairman of the ABB and managing director of BRAC Bank, Syed Mahbubur Rahman, managing director of Mutual Trust Bank, Sohail RK Hussain, managing director of Bank Asia, and Ali Reza Iftekhar, managing director of Eastern Bank, were present.

The meeting discussed the overall situation of the banking sector alongside the Moody's ratings, which the bankers said would lead to further difficulties in their international trade.

Correspondent banks impose higher confirmation charges and reduce credit lines due to such types of ratings, they said.

Urging for working to brighten the country's image, Mansur recommended first settling overdue letter of credit (LC) payments, reasoning that it damages the image at the international stage and pushes up import costs.

The overdue LC payments stands at $400 million so far, with state-run banks accounting for the biggest amount, central bank officials told The Daily Star on condition of anonymity.

The meeting also discussed the liquidity situation in the banking sector, especially in some banks, said Husne Ara Shikha, executive director and spokesperson of the central bank.

She said the BB governor asked the lenders that were financially sound to find a way to mitigate the crisis.​

Why is the banking sector crisis so deep-rooted?
Banking sector crisis


FILE ILLUSTRATION: BIPLOB CHAKROBORTY

The crisis that Bangladesh's banking sector is facing now is not simply a bundle of problems exclusive to banking, monetary, financial, accounting or managerial aspects. The sector is a victim of political extortion and rent-seeking cultures. The irregularities of the other five institutions of the past regime are mainly attributable to what the banking sector faces now. These institutions include: i) the finance ministry; ii) capital market; iii) parliament and bank-related lawmakers; iv) top-level bank borrowers and bank directors; and finally v) the financial judiciary.

The moral hazards such as taking big-ticket loans and not paying them back were not confined to the banking sector alone. This culture of extracting people's money has been an integral component of big companies, ardently endorsed by corrupt politicians in power. Thus, the crisis in the banking sector is deep-rooted. The amount of defaulted loans as a share of total outstanding loans reached 12.56 percent in June 2024 from 8.96 percent in June 2022. At the end of September, the amount of defaulted loans escalated to almost Tk 2.85 lakh crore, which is 16.93 percent of the total outstanding loans. In December 2023, the International Monetary Fund (IMF) estimated the non-performing loan (NPL) share to be 25 percent of outstanding loans.

The turbulent July-September quarter saw an unprecedented increase of nearly Tk 74,000 crore in defaulted loans, vindicating that the sector is really in a crisis no matter if the government downplays it or not. The crisis was man-made since the default culture was largely wilful, indulged by the past regime for the monetary benefits of the corrupted politicians and laundering tycoons who received blanket endorsement for all their wrongdoings.

The share of defaulted loans rose from nine percent to 13 percent within the last two years when GDP growth was around six percent on average, suggesting that the default culture was largely wilful. Alarmingly, the default ratio that was shown in data is the tip of the iceberg, because the definition of default was perversely loosened by the past finance minister in 2019-2024 and the two central bank governors during the same period to revitalise the energy of the bank looters. That made the crisis worse.

The defaulters were allowed to adjust even as low as five percent of the defaulted loans to get rid of the "stigma" of default. The past Awami League regime allowed multiple loose definitions to let some notorious tycoons participate in the national election and make faulty laws in their favour. There is another way to see that the default culture was wilful and evidently not a macroeconomy-wide issue. The high variation in the NPL ratios based on various ownerships unveils the story of how the state-owned banks were subject to a higher degree of looting, while private or foreign banks were able to maintain much lower NPL ratios.

A Bangladesh Bank report shows that at the end of June 2021, the NPL ratios were 3.9 percent and 5.4 percent in foreign banks and private banks, respectively, while the number was as high as 20.6 percent in state-owned banks. The numbers are much higher than what we see here since these ratios were calculated under the loose definitions of default. One thing is clear: the looting was religiously state-sponsored and passionately orchestrated by the politicians in power. And that's why the crisis is hard to reverse.

Corrupt politicians indulged three groups of culprits—tax dodgers, loan defaulters, and money launderers—who formed the devil's triangle of cronyism, and often belonged to the same group of looters deeply connected with the previous regime. If you can show loss in your income statements by the wicked art of accounting, you can be excused as loan defaulters and you can avoid paying taxes. However, you don't want to keep the fund inside the country, and that's why both tax dodgers and loan defaulters turn out to be money launderers at the same time.

The current Bangladesh Bank governor, Dr Ahsan H Mansur, said last month that $17 billion have been laundered out of the country over the 15-plus years of Awami League regime; only one Chattogram family is alleged to have laundered $10 billion alone. He also said Tk 4 lakh crore is now the de facto defaulted loans that form 25 percent of the total advances. And Tk 2 lakh crore has gone to only a handful of families. This group of mafias plundered Bangladesh's banking sector to dump it into an incurable crisis. Much to people's frustration, some of them became members of parliament and even ministers, while some were made ministerial-level advisers to the former prime minister. The parliament turned into a haven of financial hooligans. The crisis will never end if people see the return of the same political practice of cultivating the tycoons' support in exchange for letting them plunder the banking sector.

More family-based banks were allowed to mushroom in the name of enhancing competition, while a Chattogram-based family was encouraged to eclipse as high as seven banks single-handedly under the service of the intelligence agencies whenever needed. Any allegation or court case against that family was made "unwarranted" by influencing the judiciary. Most default cases fell in the quagmire of judicial tardiness for years, worsening the fate of loan recovery.

Thus, the regime-sponsored immorality to protect or pamper the financial gangsters not only eroded the future of the banking sector, but also made the wound too difficult to recover. Since the crisis in the banking industry is not simply its intrinsic problem, we need to correct those five institutions or related laws before we can expect a healthy recovery of the sector. Reforms must address these areas before energising the sector to move ahead swimmingly.

The writing draws heavily from the keynote speech at the BDI International Conference on Bangladesh held at the University of California, Berkeley on November 8-9, 2024.

Dr Birupaksha Paul is professor of economics at the State University of New York at Cortland in the US.​

BB tightens loan classification rules to meet IMF conditions
Bankers fear this may double default loans next year



Payment failure for three months or 90 days after the due date will now lead to classification of loans regardless of type, according to new rules announced by the central bank yesterday, aligning with international best practices prescribed by the International Monetary Fund (IMF).

The new rules will be effective from April next year, replacing current different non-performing loan (NPL) labelling tenures for different types of bank loans.

This stokes fears about a surge in toxic loans within the banking sector, which stood at a record Tk 284,977 crore at the end of September this year.

While approving the ongoing $4.7 billion loan package for Bangladesh in January last year, multilateral lender IMF set several targets, including reworking loan classification rules.

The Bangladesh Bank (BB) issued a detailed circular yesterday regarding the loan classification.

As per the new rules, a loan will be classified as substandard when the overdue tenure is three to six months. It will be classified as doubtful when the overdue tenure is six to 12 months.

When the overdue tenure is 12 months and above, loans will be classified as bad and loss.

Currently, a loan is classified as substandard when the overdue tenure is three to nine months. It turns doubtful when the overdue tenure is nine to 12 months.

Under the new rules, the overdue tenure for bad and loss category remains the same as now -- which is 12 months and above.

The cottage, micro, small and medium enterprises (CMSME) currently enjoy different loan classification tenures, which have been revoked under the new rules.

CMSME loans are classified as sub-standard when the overdue tenure is six to 18 months. Those turn doubtful when the overdue tenure is 18 to 30 months. When the overdue tenure is 30 months and above, those loans are labelled as bad and loss.

In the new rules, there is no change in provisioning against loans.

Banks now have to keep 1 to 5 percent as a provision against general category loans. This provisioning rises to 20 percent against sub-standard loans, 50 percent against doubtful loans and 100 percent against bad loans.

In the notification, the central bank said a strong financial sector is necessary to support the growing economy in Bangladesh.

According to the BB, timely steps are necessary to reduce the rate of classified loans for financial stability. The government and the Bangladesh Bank have taken various initiatives to reform the banking sector.

As part of those steps, the BB said the instructions have been issued in light of international best practices.

The loan classification and provisioning policy was first introduced in 1989 under the financial sector reform programme in Bangladesh.

Later, various changes were made to the policy to align it with international best practices and methods. Two major changes were brought in 1998 and 2006.

However, the latest major revision of the loan policy was made in 2012, central bank officials said.

Loans disbursed through irregularities to Awami League-affiliated businesses turned sour at an alarming pace after the ouster of the Sheikh Hasina-led government on August 5.

Between July and September, bad loans soared 34.8 percent or by a staggering Tk 73,586 crore, according to BB data.

Bangladesh now has the highest ratio of defaulted loans in South Asia, with nearly 17 percent of the total disbursed loans having gone bad.

Bankers said bad loans will increase further in the upcoming days thanks to the tightening loan classification rules.

"Bad loans will surpass Tk 300,000 crore by December," said Mohammed Nurul Amin, a former chairman of the Association of Bankers Bangladesh (ABB), the forum of bank managing directors and chief executives.

"If the loan classification rules are tightened, this number will jump," said Amin, the chairman of Global Islami Bank.

A World Bank (WB) team is now in talks with the central bank to support banking sector reforms. They urged the BB to implement the international standard loan classification rules immediately.​

A welcome step that needs proper implementation
29 November, 2024, 00:00

THE Bangladesh Bank tightening loan classification rules by shortening the period of overdue loans to become non-performing to six months from nine months is welcome. The rules aligned with international practices, issued in a circular on November 27, would give a clearer picture of non-performing and bad loans in the banking sector. The rules are likely to help the authorities regulate the banking sector more efficiently and to address distressed assets, including non-performing loans, more effectively. They will, as the circular says, come into effect on April 1, 2025. According to the new rules, loans overdue for three to six months will be classified as substandard, the first step of non-performing loans, while loans will be classified as doubtful if they remain overdue for six months to a year. The period now is nine months to a year. Loans overdue for more than a year will be classified as bad loans. This classification had, in fact, previously been in use but was altered by the previous government to obscure the extent of defaulted loans. The reduction in the period might, as economists say, see an increase in non-performing loans and pose challenges to some businesses but will help to discipline the banking sector in the long run.

Bangladesh Bank data show that the amount of defaulted loans increased to Tk 2,84,977 crore in September, about 17 per cent of the total bank loans of Tk 16.82 lakh crore. This is the highest ratio of defaulted loans in South Asia. The previous government, which offered irrational concessions one after another to defaulters, showed a lower figure of defaulted loans. Once the new rules come into effect, the figure is likely to increase, but it will also put regulatory authorities in a better position to address the issue that has crippled the banking sector. The new rules are also likely to help banks address provision shortfall, which increased to Tk 55,378 crore in September from Tk 31,549 crore in June. Keeping to the new rules, banks must maintain provisions against their general category loans at a rate of 1 per cent and 5 per cent of the loan balance for special mention accounts, a category newly introduced. Loans that remain overdue for two to three months will be categorised in special mention accounts. Banks are also required to maintain 20 per cent provision for loans in the substandard category, 50 per cent for loans in the doubtful category and 100 per cent for loans in the bad or loss category.

All this appears to be a positive step towards disciplining the banking sector, on the edge of collapse for a decade and a half because of political influence, manipulation and lack of democratic governance. The government and the central bank should, therefore, enforce and implement the steps to ensure transparency, accountability and sound management practices in the banking sector.​

10 banks are ‘technically bankrupt’: white paper
However, the final draft of the white paper on the state of economy did not disclose the names of the lenders



Ten crisis-hit banks, mostly Shariah-based ones, are "technically bankrupt and illiquid", according to the final draft white paper on the state of economy, which was revealed today.

"We chose 10 distressed banks to dig into their solvency and liquidity. Of the 10 banks, 2 are state-owned banks that were mostly hit by scams in the last decade. The other 8 are extremely weak shariya-based (shariah-based) banks and conventional private commercial banks," the white paper read.

However, the paper did not disclose the names of the banks.

"All the 10 banks are termed 'distressed' by the regulators, media and public."

Combined loans and deposits of these 10 banks constitute 33 percent of the total loans and 32 percent of the total deposit of the banking sector, it said.

The report, however, said most of these banks did not disclose the fair value of their assets in their financial reporting.

"Their combined adjusted value of the assets is 52 percent of the reported value. As a result, net worth is negative. Liquidity measured by the ratio of liquid assets to total tangible assets indicates 8 out of ten are illiquid," it said.​

Banks’ distress asset stands at Tk 6.75 lakh crore
Staff Correspondent 02 December, 2024, 00:26



Distressed assets in Bangladesh’s banking sector surpassed Tk 6.75 lakh crore at the end of FY24, an amount equivalent to the cost of 13.5 Dhaka Metro systems or 22.5 Padma Bridges, according to a draft White Paper released on Sunday.

Debapriya Bhattacharya, head of the 12-memebr committee formed to prepare the much-talked-about paper submitted to chief adviser Professor Muhammad Yunus on the day.

The interim government that assumed power on August 8, three days after deposed prime minister Shekh Hasina fled to India on August 5 amid a mass uprising, appointed the committee on August 28 and asked it to submit the report in 90 days.

The report highlights that the banking sector’s woes are not due to isolated incidents but stem from systemic failures and regulatory loopholes that enabled widespread malpractice.

Distressed assets include non-performing loan, rescheduled, restructured, writ ten-off, and litigated loans. The review of the White Paper puts the banking sector on top of the most corruption-ravaged sectors, followed by physical infrastructure, and energy and power.

‘Persistent loan defaults and high profile scams have eroded financial stability and diverted capital away from productive sectors,’ it said.

A fragmented regulatory system allowed significant embezzlement through fake companies or loans granted without proper documentation.

This privilege was often extended to large borrowers, including politically connected entities.

‘The culprits within the banking system are all heavy weights. The big ones coincide with the bad ones,’ it said.

Related-party lending, a glaring issue, has contributed significantly to the crisis.

Directors often arranged reciprocal loans, bypassing weak restrictions on lending to related parties.

By the end of 2023, such practices among directors of eight banks alone accounted for Tk 45,000 crore.

Politically connected borrowers frequently secured massive loans with insufficient collateral, evading legal repercussions due to a culture of impunity and political influence.

Recognised non-performing loans (NPLs) alone reached Tk 2.11 lakh crore by June 2024 — equivalent to the cost of seven Padma Bridges.

These inflated figures highlight the entrenched inefficiency and fragility within the banking system.

The problem worsened as rescheduling and restructuring practices enabled borrowers with poor credit histories to continue accessing new loans.

This lack of accountability reinforced a cycle of defaults and weakened overall financial stability.

Even state-owned banks and politically connected private commercial banks have become persistent threats to the sector.

The White Paper criticises the awarding of excessive banking licenses, which doubled over two decades, oversaturating the market.

Many licenses were issued to oligarchs with close ties to the ruling party, exacerbating corruption.

Boardrooms in several banks were filled with politically aligned or under-qualified individuals, further limiting effective governance.

The lack of autonomy for Bangladesh Bank, coupled with inadequate oversight, compounded the crisis.

Politically influenced decision-making undermined the central bank’s capacity to enforce monetary policy and regulatory measures.

Weak internal and external audits only added to the problem, as technical expertise was often sidelined.

Non-bank financial institutions (NBFIs) also faced severe distress. By September 2023, 29.8 per cent of their disbursed loans, amounting to Tk 21,658 crore, were classified as non-performing.

Just 10 NBFIs accounted for 67.5 per cent of this figure, underscoring the systemic challenges within the broader financial landscape.​

Bangladesh Bank raises credit card interest rate
FE Online Desk
Published :
Dec 01, 2024 22:02
Updated :
Dec 01, 2024 22:02



Bangladesh Bank has turned up the dial on consumer credit costs, hiking the ceiling on credit card interest rates by a significant 5 percentage points.

Previously maxed out at 20 percent, the new cap soars to a lofty 25 percent, nudging borrowers to tread cautiously in their spending sprees, reports bdnews24.com.

The change will take effect in the new year.

A notification issued by the central bank on Sunday said the banks will be allowed to implement the updated rate from 2025.

It was sent to managing directors and chief executives of all scheduled banks.

The central bank justified the decision, saying the hike was made to “ensure proper loan risk management and to align with the increasing costs banks face in their funding operations”.

Islami Shariah-based banks would set their profit rates in accordance with their investment guidelines. Other regulations will remain unchanged.

The maximum interest rate for credit card loans was set at 20 percent in September 2020, and the new hike comes after nearly four years, amid rising inflation concerns.

Governor Ahsan H Mansur had hinted at this adjustment during a meeting with commercial bank executives on Sept 4.​

Resuscitating dying banks
SYED FATTAHUL ALIM
Published :
Dec 01, 2024 23:35
Updated :
Dec 01, 2024 23:35



The banking sector of the country has been made to bleed on an unprecedented scale during the past one and a half decades of the previous government overthrown on August 5 last. Unsurprisingly, Dr Ahsan H. Mansur, the current governor of the central bank, the Bangladesh Bank (BB), with his credentials as a brilliant banker and economist, had to eat his words that he would not further inject any fresh funds into the crisis-ridden banks to resuscitate them. In fact, last week on Thursday (November 28), the central bank governor informed that he had provided Tk 225 billion in liquidity support to six struggling private banks by printing money. The banks thus receiving the funds include the First Security Islami Bank, National Bank, Social Islami Bank, EXIM Bank, Union Bank and Global Islami Bank. Obviously, the central bank had little choice but to go back on its earlier stance on the matter. Prior to this latest decision by the BB governor, under a guarantee scheme provided by the central bank, an arrangement was made to provide liquidity support to the weak banks by way of short-term loans extended by stronger banks.

But the policy did not work as expected. For, in absence of the central bank's liquidity support, commercial banks had to borrow from the interbank money market to meet their regular liquidity requirements. As a result, in tandem with the surge in the demand for liquidity in the inter-bank money market, the interest rate also shot up. At a stage, the interest on 90-day term loans rose to the highest ever at 13.5 per cent. Similarly, the interest rate in the overnight call money market also rose to slightly over 10 per cent. Clearly, the ailing banks were unable to make up for the losses due to non-recovery of the bad, that is, non-performing loans (NPLs). Add to that the money stolen from banks and laundered. Also, consider the money lying with the corrupt party people, government officials, businesses and others who amassed their wealth illegally during the past regime. They are keeping their money out of the banking system for fear of being seized by the interim government. Apart from that, the common customers who had earlier withdrawn money from their accounts due to loss of faith in the banks are yet to resume their transactions with banks as usual. Under the circumstances, if the ailing banks in question go bankrupt, the worst affected would be the common depositors. Hence is the decision of the BB to keep those banks afloat by injecting fresh funds into them by printing money.

However, unlike what happened during the tenure of his predecessor, Abdur Rouf Talukder, under the previous government, this time printing of money to bail out sick banks has not been done secretly. Actually, the person in charge of the central bank at that time helped the oligarchs owning the seriously ailing private banks so they could make off with the money, launder it and stash away in offshore accounts.

However, the present BB governor has been transparent about the measures he has taken to keep those banks afloat so that their customers could withdraw their money deposited with those banks. To offset the possibility of the newly printed money's potential to drive up inflation, there is also a plan to issue fresh monetary instruments like bonds to mop up the excess money from the market. No doubt, the decision to print fresh money, to some economists and bankers, is a political one. In that case, the main objective, evidently, is to restore the common depositors' trust, which took a severe battering during the previous regime. However, efforts should be there to avoid the risk of running those banks in case the depositors begin to withdraw their money all at once leading to the worst-case scenario of their collapse. Ironically, such dilemma had already been there because those sick banks were already on the verge of collapse due to depositors' distrust as those had repeatedly been failing to honour the customers' cheques or ATM cards being denied access to their accounts. In case of any undesirable situation arising from excessive withdrawal of money from the banks in question by the depositors, the banks could offer lucrative banking products that would encourage their depositors to continue transactions with the banks.

Once the banks are able to gain depositors' trust, the reward will come in the form of increased deposit in the banks. Increased bank deposits also mean easing the pressure of inflation, which is the present policy of the central bank. Notably, to tame inflation, the bank regulator (BB) has been pursuing a contractionary monetary policy whereby bank interest is kept high both to incentivise the depositors and discourage the borrowers. But the measure is also keeping down consumers' demand as well as discouraging private investment in the economy. That means, at the moment, the banking regulator has to walk a tight rope.

In this connection, some economists have questioned the idea of issuing bonds or similar financial instruments to suppress inflation, for the success of the measure is subject to the public's buying those instruments in large quantities. In a poorly developed financial market with a fragile banking sector, weak capital market and a population not adequately educated in the financial sense of the term, popularity of financial instruments will remain in question. In that case, the emphasis should be on acquisitioning and selling the assets of the borrowers behind NPLs.

At the same time, to ensure accountability, strong monitoring of the banking sector should continue.​

Banks shun old-time Motijheel for glitzy Gulshan

Motijheel is losing its historic lustre as Dhaka's commercial hub, with Gulshan, among the wealthiest neighbourhoods in the capital, stealing its thunder.

Nearly half of the country's 61 banks and 35 non-bank financial institutions (NBFIs) have shifted their head offices from Motijheel to Gulshan in the past decade while many others harbour aspirations of moving to what has quickly become the most appealing zip code.

Not only that, but even newly licensed banks, NBFIs and insurance companies have established head offices in Gulshan despite the fact that the Bangladesh Bank is still situated in Motijheel.

For example, Bengal Commercial Bank, awarded a Bangladesh Bank licence in 2020, established its head office in Gulshan. The same is true for Community Bank Bangladesh, licensed in 2018.

Industry people said major factors for this trend include changing business and economy, proximity to the offices of some of the largest corporations in the country as well as hotels and shopping malls, and a lack of modernisation of the Motijheel area.

"Most factories are situated in Gazipur, Ashulia, Tongi and Uttara. So it is punishing for our clients to visit Motijheel. Most of them feel Gulshan is more convenient. That is why banks are so keen to shift their head offices to the area," Mosleh Uddin Ahmed, managing director of Shahjalal Islami Bank, told The Daily Star.

Ahmed outlined another key reason for the Shariah-based lender shifting its head office from Motijheel to Gulshan Avenue in 2014, saying: "Most luxury hotels and shopping malls are located in Gulshan, making it convenient for foreign buyers who visit banks with our local customers."

He added that a major portion of clients now reside in Uttara, Gulshan, Banani and Dhanmondi, making it easier to visit Gulshan compared to Motijheel, adding that the latter offered only one benefit.



"Bangladesh Bank is located in Motijheel, which is the only convenient factor for banks and financial institutions."

The senior banker added that the Motijheel area has been stagnant in terms of development while Gulshan and Uttara were prospering through the expansion of infrastructure and industries.

M Khurshed Alam, deputy managing director of Eastern Bank, which now also boasts a Gulshan address, told The Daily Star that most banks want to be in the vicinity of big corporate houses and businesses, a majority of which are situated in Gulshan and Uttara.

"Similarly, a majority of manufacturing units are located in Gazipur, Bhaluka and Mymensingh. So, banks are shifting their head offices to Gulshan," he said.

Alam added that foreign buyers also prefer Gulshan and Banani instead of Motijheel since those areas are closer to the Dhaka airport.​

Govt approves new banknote designs featuring heritage, monuments
Published :
Dec 09, 2024 00:31
Updated :
Dec 09, 2024 00:31



The government has officially decided to change the designs of the Tk 20, 100, 500, and 1000 denominations.

This decision was approved in a meeting of the Bangladesh Bank board with Bangladesh Bank Governor Dr Ahsan H Mansur in the chair on Sunday, said its spokesperson and Executive Director Husne Ara Shikha on Sunday.

Speaking about the approval, Shikha said the new banknotes will feature updated designs.

If all goes as planned, Shikha said, the new notes will be available in the market within six months, UNB reports.

Sources in the central bank said that the new notes will no longer feature the image of Bangabandhu Sheikh Mujibur Rahman.

Instead, she said, the new designs will incorporate religious monuments, Bengali heritage and imagery related to the ‘July Revolution graffiti’.

According to Shikha, the final approval for these changes has already been granted by both the Bangladesh Bank and the government, with printing of the new notes already underway.​

Six private banks see bad loans nearly triple in a year

Defaulted loans at six private commercial banks nearly tripled in one year till September 2024, according to central bank data, which bankers term "alarming".

They altogether held Tk 80,573 crore in September this year, which is over 171 percent more than Tk 29,645 crore in September 2023.

National Bank has the highest bad loans among the private commercial lenders. As of September this year, its defaulted loans stood at Tk 23,722 crore, which is 55.81 percent of its total disbursed loans.

The private lender is now suffering from a Tk 16,614 crore provision shortfall.

The bank's bad loans were Tk 13,515 crore a year earlier.

After the formation of the interim government early August, the central bank restructured the board of eleven banks, including National Bank.

The bank is the country's first private sector commercial lender with a prosperous past. But it became a losing concern due to massive loan irregularities, lack of good governance and conflict among directors.

During the 16-year tenure of the previous Awami League government, business conglomerate Sikder Group dominated the bank.

After the recent political changeover, Abdul Awal Mintoo, a businessman and vice-chairman of the Bangladesh Nationalist Party (BNP), became the bank's chairman.

Bad loans at Islami Bank Bangladesh rose to Tk 17,752 crore by September of this year, up from Tk 7,084 crore at the same period last year.

The bad loans figure stood at 11 percent of its total disbursed loans, according to data.

Islami Bank Bangladesh was one of the worst victims of the controversial business conglomerate S Alam Group, which dominated the board of the largest Shariah-based bank until mid-August of this year.

The Chattogram-based conglomerate and its associated companies took out more than 50 percent of the lender's total Tk 163,863.78 crore loans, documents showed.

First Security Islami Bank, Union Bank and Global Islami Bank are three other banks that were under the grip of S Alam Group and saw their bad loans rise sharply in the last year.

In year-over-year calculations, defaulted loans at First Security Islami Bank rose by Tk 10,933 crore to Tk 12,948 crore; bad loans at Union Bank rose by Tk 11,374 crore to Tk 12,218 crore; and bad loans at Global Islami Bank rose by Tk 3,570.91 crore to Tk 3,816.91 crore, according to data.

Those three Shariah-based lenders were also freed from the grip of the S Alam Group as the central bank dissolved the board and formed a new one for each.

Officials of those lenders said that a majority of the disbursed loans taken out by the Chattogram-based business group and its associate companies are now becoming defaulted.

Defaulted loans at AB Bank rose by Tk 4,176 crore to Tk 10,116 crore by September of this year.

Industry insiders said that lackluster loan recovery efforts from top borrowers have contributed to the increase in bad loans at the private sector bank.

Central bank data showed that, except for two or three, bad loans of almost all private sector banks have increased in the last year.

As of September of this year, bad loans in the banking sector stood at Tk 284,977.31 crore, of which Tk 149,806.33 crore were at 43 private commercial banks, according to central bank data.

The figure represents 11.88 percent of their total disbursed loans as of September.

Bad loans at private commercial banks stood at Tk 81,537.81 crore at the same period last year.

Anis A Khan, former chairman of the Association of Bankers, Bangladesh (ABB), told The Daily Star that defaulted loans will increase further in the coming days.

He said that a huge amount of money was siphoned off from the country, which will not return to the banking sector. On the other hand, businesses are now suffering significantly due to global and domestic economic hardships.​

Majority of 4th-generation banks issued licences on political considerations
Says a BIBM study
FE REPORT
Published :
Dec 19, 2024 00:34
Updated :
Dec 19, 2024 00:34



Almost all the fourth-generation banks in Bangladesh were given licences on political considerations, reveals a study conducted by the Bangladesh Institute of Bank Management (BIBM).

While a few of these banks have shown promising performance, many are riddled with serious challenges, including liquidity crises, high non-performing loans (NPLs), reputation issues, and regulatory penalties, according to the study.

The study titled "Institutional Sustainability of Fourth-Generation Banks in Bangladesh: A Socio-Psychological Perspective" was presented at a seminar held at the BIBM auditorium on Wednesday.

Dr. Mohammad Tazul Islam, associate professor of BIBM, presented the findings on behalf of the research team, which included Dr. Md. Shahid Ullah, associate professor of BIBM; Dr. Mohammad Monirul Islam Sarker, director of Bangladesh Bank; and Mahmud Salahuddin Naser, director of the Monetary Policy Department, Bangladesh Bank (BB).

The seminar was chaired by Dr. Md. Akhtaruzzaman, director general of BIBM, while Nurun Nahar, chairman of the BIBM Executive Committee and deputy governor of BB, was present as the chief guest.

In her address, Nurun Nahar stressed the urgency of strengthening governance frameworks and enhancing regulatory oversight to improve the sustainability of the fourth-generation banks.

She called for addressing the systemic challenges, including political interference, liquidity crises, and rising NPLs.

The study highlighted that political influence in licensing has weakened the governance structure of many fourth-generation banks, leading to operational inefficiencies. Besides, poor corporate governance, unethical practices, and a lack of transparency in transactions have resulted in increased credit mismanagement and NPL growth.

It further noted that aggressive lending practices, combined with uncontrolled deposit rates, have distorted the competitive market structure.

The study established a strong correlation between higher Advance Deposit Ratios (ADR) and rising NPLs, showing that aggressive lending often compromises credit quality and financial stability.

The research pointed out several critical factors contributing to unsustainability of these banks. They include political interference in decision-making processes, weak enforcement of laws and regulatory oversight, legal loopholes exploited by politically connected defaulters and a short-term strategic vision by bank management and boards.

The study also laid emphasis on socio-psychological challenges, such as cultural norms that tolerate irregularities, fear of economic insecurity, and limited depositor trust. Weak judicial systems and inactive civil society organisations were identified as additional barriers to accountability and governance.

The paper also said that 64 per cent of respondents identified good governance as the most critical factor for institutional sustainability.

Some 60 per cent strongly agreed on the need for improved financial stability and regulatory monitoring, the study said, adding that nearly 60 per cent of respondents also believed there are too many banks in Bangladesh and that new licenses were unnecessary.

The study underscored the importance of normative factors such as professional ethics, education, and job satisfaction in improving institutional sustainability while identifying significant gaps in cultural and legal enforcement frameworks.

The study added the laws enacted by the ill-motivated politician-cum-businessmen lawmakers have intentional loopholes so that they can unduly influence the board and management of the banks and no stern actions can be taken against the defaulters.

The welcome address was delivered by Md. Shihab Uddin Khan, associate professor and director (Research, Development & Consultancy) of BIBM. Designated discussants included Md. Ali Hossain Prodhania, supernumerary professor of BIBM; M. Shamsul Arefin, managing director of National Credit and Commerce Bank PLC; and Md. Shafiul Azam, managing director & CEO of Modhumoti Bank PLC.

Senior bank executives, faculty members, media representatives, and academicians actively participated in the discussions, sharing their insights on addressing the challenges facing the banking sector.

The seminar concluded with a strong call for systemic reforms to ensure institutional sustainability.

After the country's independence in 1971, banking industry in Bangladesh started its journey with six nationalized commercialized banks, two state-owned specialized banks and three foreign banks.There are 61 scheduled banks in Bangladesh. Of them, six are state-owned commercial banks, three specialized banks, 43 private commercial banks (33 conventional and 10 Islamic banks), and nine are foreign commercial banks.

Again, based on the year of establishment, the banking sector is clustered into four generations. Banks incorporated in 1971-1990; 1991-2000; 2001-2012; and after 2013 are called first, second, third, and fourth generation banks respectively.​