🇧🇩 Banking System in Bangladesh

[Saif]

Bank mergers: navigating challenges, seizing opportunities
MD. TOUHIDUL ALAM KHAN
Published :
Apr 08, 2024 22:03
Updated :
Apr 08, 2024 22:03

In the ever-evolving landscape of Bangladesh's financial sector, a profound transformation is underway, driven by strategic mergers guided by the Bangladesh Bank. These mergers represent a pivotal moment, promising to reshape the banking industry's future while addressing pressing challenges. However, beneath their surface lies a complex interplay of factors that demand a comprehensive understanding and strategic navigation.

Think of two banks standing at opposite ends of a spectrum: one embodies strength, stability, and resilience, while the other grapples with weaknesses and vulnerabilities, struggling against the tides of economic uncertainty. As the Bangladesh Bank issues directives for a merger, its aim is clear: to build a unified entity that harnesses the strengths of both while mitigating their weaknesses. This endeavour holds immense promise, but it also poses significant challenges that warrant careful consideration and meticulous planning.

At the heart of bank mergers lies the issue of stability. By integrating weaker banks with their stronger counterparts, the overarching goal is to reinforce the financial sector's foundation, making it more robust and resilient in the face of market volatility. Stronger banks bring to the table a wealth of resources, including robust risk management practices and substantial capital reserves, which serve as a bulwark against systemic risks. However, achieving this stability is contingent upon navigating valuation intricacies and overcoming integration hurdles.

Operational efficiency stands as another cornerstone of bank mergers. Through consolidation, banks aim to streamline their operations, eliminate redundancies, and optimise resource utilisation. This not only translates into cost savings but also fosters a culture of efficiency and innovation within the merged entity. Yet, the path to operational excellence is rife with challenges, particularly concerning the integration of disparate systems, processes, and organizational cultures.

One of the most formidable challenges in bank mergers is cultural integration. Each bank boasts its own unique organisational culture, shaped by its history, values, and operating principles. Merging these distinct cultures requires finesse, empathy, and effective communication to bridge gaps and foster a sense of unity and purpose within the combined entity. Failure to address cultural disparities can lead to internal friction, hampering productivity and eroding employee morale.

Despite the potential benefits, bank mergers inevitably give rise to concerns. Chief among these is the threat of job losses, as mergers often result in workforce rationalisation and redundancies. To allay fears and safeguard employee interests, the Bangladesh Bank has instituted guidelines mandating job security for employees of merged entities for a stipulated period. While this measure provides a degree of reassurance, it also introduces complexities related to organisational culture and performance management.

Regulatory supervision plays a pivotal role in ensuring the integrity and efficacy of bank mergers. Regulatory bodies must enforce compliance with guidelines and regulations governing mergers to safeguard the interests of stakeholders. This entails conducting thorough due diligence assessments to identify potential risks and issues and implementing legal provisions to hold accountable those responsible for past misconduct, including defaulters and unethical bank employees.

As Bangladesh's banking sector undergoes a profound transformation through mergers and acquisitions, it stands at a crossroads, brimming with both challenges and opportunities. By navigating these challenges with foresight, resilience, and strategic planning, the sector can emerge stronger, more resilient, and better equipped to meet the evolving needs of its customers and drive sustainable economic growth.

Md. Touhidul Alam khan is the Managing Director & CEO of National Bank Limited.​

 

[Saif]

Islamic banks need more investment

Despite the apprehension that the Islamic banking industry in the country has fallen into deep trouble, the industry's overall performance last year indicated a positive trend. Many of the key indicators showed that Islamic banks are still on the right track, although some corrective steps are nece

thefinancialexpress.com.bd

Islamic banks need more investment
ASJADUL KIBRIA
Published :
Apr 06, 2024 22:00
Updated :
Apr 07, 2024 21:55

Illustrative image

Despite the apprehension that the Islamic banking industry in the country has fallen into deep trouble, the industry's overall performance last year indicated a positive trend. Many of the key indicators showed that Islamic banks are still on the right track, although some corrective steps are necessary to boost the customers' confidence further. As one-fourth of the country's banking sector now operates under the Islamic mode of finance, it is essential to keep the industry vibrant.

Last month, Bangladesh Bank released the quarterly report on Islamic Banking in Bangladesh. It showed that at the end of December 2023, Islamic banks represented 25.35 per cent share in deposits and 28.92 per cent share in investments in the total banking industry. The ratio was 25.81 per cent and 29.20 per cent, respectively, at the end of December 2022. However, the marginal decline in the Islamic banks' share in deposits and investments within a year is not so alarming. This is because both the deposits and investments increased by 8.16 per cent and 9.81 per cent, respectively.

Statistics available with the central bank also showed that all exports, imports and remittance mobilisations through the Islamic banking industry increased significantly at the end of 2023 over the same period of 2022. The sector's combined excess liquidity, however, dropped by 13 per cent, showing some weakness in the Islamic banking industry.

It is to be noted that at the end of December 2023, there were ten full-fledged Islamic banks in the country operating with 1,670 branches. In addition, 30 Islamic banking branches of 15 conventional commercial banks and 624 Islamic banking windows of 16 conventional commercial banks also provide Islamic financial services. All these together are considered the country's Islamic banking industry or sector, although the full-fledged 10 Islamic banks' share was more than 92 per cent of the total deposits of the sector and 94 per cent of the investments at the end of last year. These banks earned 99 per cent of the total remittance, though they shared around 81 per cent of the total international trade financing of the Islamic banking industry.

Islami Bank Bangladesh PLC (IBBL), the oldest and leading Islamic and private commercial bank in the country, holds one-third of all Islamic banks' deposits and investments and 40 per cent of remittance earnings. Al-Arafah Islami Bank PLC, however, had one-third of international trade financing at the end of December last year.

Last year, the liquidity crunch in Islamic banks became a serious concern. Five of the ten full-fledged Islamic banks faced persistent liquidity crises and were compelled to seek special liquidity support from the central bank. Many, however, interpreted that these banks were in deep trouble and sought support from Bangladesh Bank. They also argued that internal mismanagement and bad loans have deteriorated the asset quality of some of the Islamic banks, which is reflected in the liquidity crunch. Some even apprehended that depositors have lost confidence, driving massive withdrawals from these banks. All these create panic and misunderstanding about the Islamic banks, further complicating things. Interestingly, all the five Islamic banks regained some liquidity surplus by the end of December signalling the improvement of liquidity situation.

It is, however, important to note that the liquidity support by the central bank to commercial banks from time to time is a regular function. When the money market becomes dry due to higher demand of cash, many commercial banks resort to direct and indirect liquidity support from the central bank.

In Bangladesh, conventional banks must maintain a 13 per cent Statutory Liquidity Ratio (SLR) and a 4 per cent Cash Reserve Ratio (CRR) with Bangladesh Bank. CRR is the portion of total deposits that commercial banks must maintain as cash reserves with the central bank. SLR is the minimum percentage of a bank's net demand and time liabilities that it has to maintain in the form of approved government securities. A conventional bank usually maintains the SLR by investing in treasury bonds with different maturities. The bank may use the bond through repo or reverse-repo mechanism to avail necessary liquidity or cash from Bangladesh Bank when required.

The SLR for the Islamic banks is 5 per cent instead of 13 per cent and CRR is 4 per cent. However, an Islamic bank cannot invest in treasury bonds or other government securities because these instruments are interest bearing ones and not shariah-complaint. There was no eligible investment option for the Islamic banks to maintain the SLR earlier. To overcome the shortcoming, the Bangladesh Government Islamic Investment Bond (BGIIB) was introduced in 2004. Islamic banks can borrow from this fund in case of liquidity shortage, which is mobilised through the selling of the BGIIB securities based on the mudarabah principle. But, the transaction is thin. In 2020, the government introduced the Sukuk, an Islamic bond, which became a vital instrument for Islamic banks to maintain SLR. The total amount of Sukuk issued stood at BDT 180.00 billion till the end of December 2023.

As other commercial banks and financial institutions have also invested in Sukuk, the space for Islamic banks has also been reduced here. This means that even after investing in Sukuk, these banks have idle funds in hand. When demand for cash withdrawal increases, the idle funds are exhausted, and the banks at one stage face a liquidity crunch. The Islamic bank, like the conventional banks, cannot borrow from the call money market as the repayment is subject to interest. In that case, the only option for these banks is to seek the central bank's support.

So, it is necessary to float some more Islamic securities or tools so that the Islamic banks can manage the liquidity efficiently. The latest quarterly report of the central bank, however, claimed: "To make efficient use of excess liquidity of the Islamic banking sector, more innovative Islamic money market and capital market products are introduced. The recent introduction of Sukuk and its huge responses from the investors indicate that it will facilitate smooth liquidity management of Islamic banks which may also help deficit financing of the government budget and promote Islamic capital market in the long run."

In reality, more work is needed as a number of barriers are there to develop well functioning shariah-complaint financial instruments. Five years ago, a study paper titled 'Liquidity Management Instruments for the Islamic Banks in Bangladesh' identified these and outlined a series of recommendations. Many of these are still relevant.​

 

[Saif]

No more bank merger proposals to be accepted: BB

Breaking News, International News & Multimedia

thedailynewnation.com

No more bank merger proposals to be accepted: BB
16 Apr 2024, 12:00 am
Staff Reporter :

The Bangladesh Bank (BB) has received five merger proposals from banks and now plans not to receive any more applications for the time being before the completion of the initial bids.

The central bank's spokesperson, Mezbaul Haque, said on Monday that the banks set for merger in the immediate future include Rajshahi Krishi Development Bank, Bangladesh Development Bank Limited (BDBL), BASIC Bank Limited, Padma Bank, and National Bank Limited.

However, beyond these institutions, no concrete decisions have been made yet regarding further mergers right now, but negotiations are going on regarding potential future consolidation, he informed.

Earlier on March 12 this year, the spokesperson confirmed in a press conference that banks can merge voluntarily until December this year; otherwise, the central bank will take the decisions for mergers based on performance.

In line with the consolidation efforts, Bangladesh Bank has also issued regulations governing bank mergers.

Banks deemed to be in a weak or precarious financial condition will be compelled to merge if they fail to do so voluntarily in accordance with the central bank's policies.

Under the current proposals, state-run Sonali Bank wants to acquire Bangladesh Development Bank Ltd. (BDBL), and Bangladesh Krishi Bank (BKB) wants to take over Rajshahi Krishi Unnayan Bank (Rakub).

Likewise, private commercial bank City Bank wants to acquire state-run BASIC Bank, while United Commercial Bank plans to buy problematic National Bank, and Shariah-based Exim Bank wants to absorb scam-hit Padma Bank.

BB Executive Director and Spokesperson Md. Mezbaul Haque also highlighted that the managing directors and chairmen of the respective banks had verbally informed the central bank about the planned merger.​

 

[Saif]

BB gets five merger proposals from banks

No new proposal will be accepted before the completion of the five, BB says

www.thedailystar.net

BB gets five merger proposals from banks
No new proposal will be accepted before the completion of the five, BB says

Banks send five merger proposals to BB

The central bank got five merger proposals from banks and now plans not to receive any more applications for the time being before the completion of the initial bids.

Under the five proposals, state-run Sonali Bank wants to acquire Bangladesh Development Bank Ltd (BDBL) and Bangladesh Krishi Bank (BKB) wants to take over Rajshahi Krishi Unnayan Bank (Rakub).

Private commercial City Bank wants to acquire state-run BASIC Bank while United Commercial Bank plans to buy problematic National Bank and Shariah-based Exim Bank wants to absorb scam-hit Padma Bank.

Bangladesh Bank Executive Director and Spokesperson Md Mezbaul Haque told The Daily Star that the managing directors and chairmen of the respective banks had verbally informed the central bank about the planned merger.

"These are voluntary merger proposals and the lenders will apply to the central bank formally after the plan is approved at their board meeting."

"We will work on the five proposals at this moment. We will receive more proposals after completing the merger of the five proposals."

More to follow….​

 

[Saif]

Bangladesh Development Bank to be merged with Sonali Bank

In another plan, the government will merge Rajshahi Krishi Unnayan Bank with Bangladesh Krishi Bank

www.thedailystar.net

Bangladesh Development Bank to be merged with Sonali Bank

In another plan, the government will merge Rajshahi Krishi Unnayan Bank with Bangladesh Krishi Bank

Bangladesh Development Bank Ltd will be merged with Sonali Bank, and Rajshahi Krishi Unnayan Bank will be taken over by Bangladesh Krishi Bank, according to a central bank official.

The primary decision of mergers was taken in a meeting between Bangladesh Bank Governor Abdur Rouf Talukder and managing directors of the respective banks at the BB headquarters yesterday.

The government took the decision in principle and informed the banks about the merger move, the central bank official said, asking not to be named.

Md Afzal Karim, managing director of state-run Sonali Bank, told The Daily Star that a formal decision was yet to be taken about the merger.

He said that primarily the boards of the respective banks will have to approve of the merger.

"Then they will apply to the BB," Karim said, adding that a formal decision on the merger may come soon.​

 

[Saif]

UCB plans to take over troubled National Bank

United Commercial Bank (UCB) is likely to take over trouble-ridden National Bank Ltd (NBL), according to officials of the lenders.

www.thedailystar.net

UCB plans to take over troubled National Bank

United Commercial Bank (UCB) is likely to take over trouble-ridden National Bank Ltd (NBL), according to officials of the lenders.

The development came from a meeting between top officials of UCB and Bangladesh Bank presided over by Governor Abdur Rouf Talukder today.

UCB Executive Committee Chairman Anisuzzaman Chowdhury and Managing Director and CEO Arif Quadri were present among others at the meeting at the central bank headquarters, according to officials.

UCB expressed its interest in acquiring NBL which suffered Tk 3,285 crore in losses in 2022, the highest in the history of Bangladesh's banking sector, burdened with high default loans.

Default loans accounted for 25 percent of NBL's total loans at the end of 2022.

By contrast, UCB which recorded Tk 402 crore in net profit in 2022, had a 5.99 percent nonperforming loan.

Contacted, a top official of the UCB seeking to remain unnamed, said the lender showed its interest in taking over the NBL as default loans will be taken by an asset management company.

Besides, the central bank will provide policy support if any bank acquires any weak bank voluntarily, the official said, adding that the existing sponsors are unlikely to have any stake in the NBL after valuation.

"NBL is one of the oldest banks. If we take out losses, it has some strengths, including its network to bring in remittances. It also has good export business," the official said.

NBL Chairman Syed Ferhat Anwar who was appointed by the central bank by dissolving the previous board to rescue the bank, said the takeover plan was not final yet.​

 

[Saif]

Bank Asia plans to acquire Bank Alfalah’s Bangladesh unit

Bank Asia is going to hold a meeting of its board of directors next Sunday and is likely to disclose the mater in detail, a senior official of Bank Asia said.

www.thedailystar.net

Bank Asia plans to acquire Bank Alfalah's Bangladesh unit

Private commercial lender Bank Asia plans to acquire the Bangladesh-based operations of foreign lender Bank Alfalah.

Karachi-based Bank Alfalah disclosed the information to the Pakistan Stock exchange on April 17.

The disclosure said the board of directors of Bank Alfalah Ltd had given approval in-principal for the non-binding indicative offer received from Bank Asia Ltd to acquire the bank's Bangladesh operations, assets and liabilities, subject to compliance with all applicable laws, regulations and obtaining of necessary regulatory approvals.

"We will now seek approval from the State Bank of Pakistan for Bank Asia to commence due diligence on Bank Alfalah, Bangladesh," the bank said in the disclosure.

Contacted, Sohail RK Hussain, managing director of Bank Asia, told The Daily Star that it was ongoing process. "And it is not part of the current discussion of the merger of weak banks with strong banks," he said.

He added that Bank Alfalah's Bangladesh unit was operating smoothly.

Bank Asia is going to hold a meeting of its board of directors next Sunday and is likely to disclose the mater in detail, a senior official of Bank Asia said.​

 

[Saif]

Hurried mergers may prove counterproductive

Has the process of planning bank mergers been truly voluntary?

www.thedailystar.net

Hurried mergers may prove counterproductive
Has the process of planning bank mergers been truly voluntary?

Visual: Star

We are concerned by the way in which Bangladesh Bank has decided to proceed with its plan for bank mergers and acquisitions. As we saw in the case of the planned merger of Shariah-based Exim Bank and struggling Padma Bank, a memorandum of understanding (MoU) was signed even before a detailed guideline on mergers and acquisitions was issued, whereas the sequence of events should have been the other way around. And even after the guideline was issued by BB, it is not being followed properly, according to a report by Prothom Alo.

According to members of these banks, BB itself has directed which bank should merge with whom. During these meetings, the merger decisions were made in some cases in the presence of representatives of the two banks concerned, and in other cases, with representatives of only one bank. Some bank directors have even said that they had found out information about their own bank mergers from newspaper reports. Therefore, although the central bank has assured that mergers would be voluntary, it seems as if the reality is anything but that.

The World Bank had earlier warned that without careful assessment and prudent implementation of procedures to avoid weakening good banks as they acquire bad ones, rapidly implementing bank mergers may further undermine confidence in the sector. That is exactly what seems to be happening, with some bank employees expressing concern regarding the merger proceedings thus far. Moreover, experts have also mentioned the need to bring about systemic changes in the sector—such as regulators ensuring that habitual defaulters no longer get bank loans—without which bank mergers will not be beneficial. In fact, without such changes, good banks might also end up in difficulty.

Even though bank mergers, if properly carried out, would be beneficial, it seems Bangladesh Bank is proceeding with them too hastily. As a result, not everyone seems to be aware of what is going on, and banks are being made party to the mergers not of their own volition. Under the circumstances, BB needs to take a step back and discuss the matter openly with all stakeholders so that confusion and panic do not seep into the sector, further damaging it.​

 

[Saif]

BASIC Bank officials ‘terrified’ by impending merger

As a state-run bank, BASIC Bank's officers and employees enjoy and job security alongside various employee benefits -- including salaries, provident fund facilities, gratuity, retirement allowance -- which may differ from those offered at City Bank.

www.thedailystar.net

BASIC Bank officials 'terrified' by impending merger

Officials and employees of state-run BASIC Bank are concerned about their future in the face of an impending merger, they said in a memorandum sent to the Bangladesh Bank governor yesterday.

The employees of the bank submitted the memorandum to the governor's office on Tuesday.

However, Bangladesh Bank governor Abdur Rouf Talukder is now in the US to attend the spring meetings of the International Monetary Fund (IMF) and the World Bank Group (WBG).

About a week earlier, they submitted a separate memorandum in this regard to the finance minister as the scam-hit lender is likely to merge with City Bank, a private commercial bank.

In the memorandum, the officials and employees of BASIC Bank said they are 'terrified' over the merger news and, to avoid uncertainty, urged for a merger with a government bank instead.

As a state-run bank, BASIC Bank's officers and employees enjoy and job security alongside various employee benefits -- including salaries, provident fund facilities, gratuity, retirement allowance -- which may differ from those offered at City Bank.

Once a well-run state bank, BASIC descended into a hotbed of irregularities after Sheikh Abdul Hye Bacchu was made its chairman in 2009 on political considerations.

On April 8, City Bank agreed to take over BASIC Bank following a meeting between the Bangladesh Bank governor and the managing director and chairman of City Bank.

Bangladesh Bank executive director and spokesperson Md Mezbaul Haque yesterday told journalists that the merger of weak banks with strong ones is a long process requiring several steps before finalisation.

He also informed that the merger process can be cancelled at any stage, in which case both banks will continue operations as usual.

Responding to a query, Haque said although BASIC is government-owned, it is unlike any other state-run bank.

Other state-run banks were formed through the Banks' Nationalization Order but BASIC Bank was not formed the same way, which is why there will be no difficulties in merging it with a private commercial bank, he added.

BB APPOINTS AUDITOR FOR PADMA BANK, EXIM BANK

As part of their merger, Bangladesh Bank has appointed an audit firm to examine Padma Bank and EXIM Bank and find out the actual financial health of these banks.

The audit firm, Rahman-Rahman Huq, was appointed by the central bank recently as a part of the merger plan, Haque said.

He also said the audit firm was instructed to submit its report to the central bank within a fixed period.

EXIM Bank and Padma Bank signed a memorandum of understanding on March 18 to initiate the merger process in the presence of the central bank governor.

Till now, the central bank has received five merger proposals.

These include state-run Sonali Bank's acquisition of Bangladesh Development Bank Ltd and Bangladesh Krishi Bank's takeover of Rajshahi Krishi Unnayan Bank.

Additionally, City Bank, a private commercial lender, wants to acquire state-run BASIC Bank, while another private lender, United Commercial Bank Limited, plans to buy National Bank.

"We will work on the five proposals at this moment. We will receive more proposals after completing the five proposed mergers," Haque said recently.​

 

[Saif]

Basic, National Bank Mergers: People withdrawing money in panic

A recent rush to withdraw money from the BASIC Bank and National Bank is worsening the situation the troubled institutions are facing.

www.thedailystar.net

Basic, National Bank Mergers: People withdrawing money in panic

A recent rush to withdraw money from the BASIC Bank and National Bank is worsening the situation the troubled institutions are facing.

Depositors flocked to branches of the two banks last week following reports that BASIC Bank would soon merge with City Bank and National Bank with UCBL.

On April 18, the management of the state-run BASIC Bank wrote to the Financial Institution Division of the finance ministry, asking for advice on how to cope with the situation.

Officials said almost Tk 2,000 crore was withdrawn from the bank in a couple of days last week.

In June last year, deposits stood at Tk 15,935 crore at BASIC Bank. The amount has now come down to around Tk 12,000 crore, according to data from the bank.

In another letter sent to the finance ministry last week, the bank's management said it wanted the institution to merge with another state-run entity instead of a private one.

Contacted, Abu Md Mofazzal, acting managing director of BASIC Bank, said different government entities chose his bank to deposit money because it was a state-run institution.

The government bodies are now withdrawing their funds because the bank is merging with City Bank, which is private, he said.

Managers of BASIC Bank branches are receiving many phone calls from institutions that want to withdraw their money, Mofazzal said.

"This will ultimately be the government's loss," he said.

In 2014, a central bank investigation found BASIC Bank Chairman Sheikh Abdul Hye Bacchu's involvement in embezzlement of Tk 4,500 crore. This ultimately diminished the bank's financial health from which it is yet to recover.

As of December last year, the bank's bad loans stood at Tk 8,204 crore, which is 64 percent of its total disbursed loans.

On April 16, the officials and employees of the bank submitted a memorandum to the Bangladesh Bank governor, saying that they were worried about their future after hearing about the merger proposal.

National Bank is also struggling to keep up with the horde of clients waiting to withdraw their money.

Amid reports of financial irregularities, Bangladesh Bank in December last year reconstituted National Bank's board of directors.

National Bank Managing Director Touhidul Alam Khan said the sudden rush for withdrawal was a tremendous pressure for the firm.

"We are visiting our branches to talk to depositors and request them not to withdraw their money," he said.

From January to September last year, the bank lost Tk 1,123 crore. In 2022, it lost Tk 357 crore.

The bank's bad loans stood at Tk 12,368 crore which was 28.92 percent of its total disbursed loans, shows BB data.

According to industry insiders, Bangladesh Bank's recent decision to merge different banks has sent a wave of fear among depositors, stakeholders, bankers, and directors.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said, "Both the weak and strong banks are likely to face the rush to withdraw deposits. But the central bank and the government must ensure that depositors do not lose their money."

However, Mashrur Arefin, managing director of the City Bank, said people often do not like changes.

There should not be much to worry about if the central bank and the government financially support writing-off impaired assets and operating loss of the weak bank, he said.

He said that if the merger of the two balance-sheets takes place after restructuring of the weak bank, then all fears are unnecessary.​

 

[Saif]

In need of prudent bank merger strategy

Bangladesh Bank has recently unveiled a roadmap for banking sector reform. The roadmap aims at ensuring good governance, maintaining public confidence and eventually promoting stability in the financial sector. The comprehensive plan targets seventeen key issues to resolve, of which eleven are for

thefinancialexpress.com.bd

In need of prudent bank merger strategy
NIRANJAN CHANDRA DEBNATH
Published :
Apr 20, 2024 21:35
Updated :
Apr 20, 2024 21:35

Bangladesh Bank has recently unveiled a roadmap for banking sector reform. The roadmap aims at ensuring good governance, maintaining public confidence and eventually promoting stability in the financial sector. The comprehensive plan targets seventeen key issues to resolve, of which eleven are for recovery of defaulted loans and six for ensuring good governance. Five of the issues are considered specifically significant. They are: (i) reduction of defaulted loans, (ii) prevention of anonymous loans and fraudulent activities, (iii) appointment of competent directors, (iv) appointment of independent directors and (v) consolidation of weak banks through merger. To identify weak banks, Bangladesh Bank has issued a framework known as PCA (prompt Corrective Action). As per the PCA framework banks will be categorised into four groups on the basis of four indicators like Capital Adequacy, Common Equity tier-1capital, Net NPL and Corporate Governance. Besides, the Banking Companies (amendment) Act-2023 added a new section 77(A) giving power to the Bangladesh Bank to merge banks compulsorily.

Failure of a bank leaves diverse impacts and may become too costly for the banking sector and the overall economy of a country. Besides, in democracies, along with economic and social impacts bank failure may have huge political impacts. So, to prevent failure of banks, the regulator and the government around the globe sometimes decide for liquidation or force merger of banks.

The banking sector reform roadmap in its priority has kept merging of weak banks first voluntarily and then forcibly, if required. Bank merger is a common phenomenon and widely used tool for consolidation of bank companies around the globe. Sometimes banks voluntarily agree to merge for attaining synergies, economics of scope and scale, diversification, tax savings and even to survive. The regulatory bodies or the government also direct some banks for merger in view of greater national interest. Besides, sometimes bank merger becomes inevitable when it is too late to identify the decay of a bank or financial institution timely or to cope with national and international financial crisis. Every year a good number of banks are merged in different countries around the globe, some mergers take place voluntarily and some forcibly. During the Asian financial crisis of 1997 many banks and financial institutions of different South Asian countries like Japan, Malaysia, Indonesia, Thailand, Sri Lanka and Pakistan and during American financial crisis in 2008, America merged many of its banks. Even in recent years India merged a good number of banks to ensure stability of the banking sector. In Bangladesh, through nationalisation order, reconstitution programme and directed initiatives many banks were merged, reconstituted and taken over by other banks.

The decision of merging weak banks is definitely a good move but execution of the same is a huge challenge. For making the move effective and successful some points may be taken into active consideration. The concerned authorities need to review/analyse the experiences of previous bank mergers in our country. Review of the performance of the merged banks in India in 2020 may also provide us valuable inputs. Performance appraisals of banks merged in Bangladesh reveal that private sector banks and foreign banks merger achieved satisfactory improvement in their post-merger performance. Most of the key financial indicators of these banks reflected notable development after merger. On the other hand, the state-owned bank merger in our country failed to maintain even pre-merger financial position, let alone make any improvement. At the same time, Indian Public Sector Banks (PSBs) merger in 2020 have attained remarkable improvement in almost all spheres of their operations after merger. The post-merger performance review reveals that almost all the indicators like deposit, advance, NII, and CRAR increased and NPL declined substantially from its earlier state. Only two of many financial indicators like 'other operating income' and 'percentage of maintained provision' plummeted very insignificantly. Indian authority also expects that these merged PSBs will produce more performance improvements in the forthcoming days.

Now we can look into the factors of success of private and foreign banks merger in Bangladesh and success of PSB merger in India vis-à-vis causes of failure of state owned banks' merger in Bangladesh. The key factors identified behind success of merger of private and foreign banks in Bangladesh are-- ensuring good governance and management, removing unnecessary and inefficient manpower, reengineering products and services and adopting huge technological transmission etc. In Indian PSB merger, key principle was merging with the bigger and the stronger. Along with many other factors, the principle of merger with the bigger and the stronger contributed to a large extent towards the success of Indian PSBs mergers. Critical analysis/review of state owned banks merger in Bangladesh revealed absence of these key success factors.

As the roadmap stipulates, weak banks will be merged with strong banks. This is obviously the pre-condition of the success of merger. In doing so, necessary precautions need to be taken so that this does not set any bad precedent in the sector -- with wrongdoers willfully making their respective banks weaker in the hope of merger with strong ones. Alongside continuation of the merger process, it is crucial to ensure strong monitoring and supervision to prevent these apprehended ill motives of banking sector perpetrators. For making the most talked about bank merger move effective and successful, it is also essential to craft a well thought out merger policy first, taking into account international practices, realities of Bangladesh, the secrets of success of private and foreign banks in the country and around the globe vis-a-vis the causes of failure of banks in the country. Simultaneously, assessment of the true health of both transferee and transferor banks, taking appropriate measures for disposal of distressed assets, identifying the incentives to be provided etc are crucial. It is vitally important to identify the culprits responsible for creating anarchy and instability in the banking sector and bring them to justice for their misdeeds; otherwise the move may fail to attain expected result.

Bank merger is a big decision and complex process. If done prudently, it may pay off or it may cause peril if done haphazardly. Choosing the right partner, ensuring efficient management, rationalising manpower, expediting digitisation and ensuring adequate capital are crucial factors for success of bank merger. In executing future merger decisions concerned authorities need to pay due attention to these factors. Finally, the merger strategy of weak banks should be to resolve the problems once and for all.​

 

[Saif]

Banks see slow rebound from liquidity shortages

Cash-strapped banks seem to be slowly bouncing back from liquidity crunch on cash feeding by the central bank that has handed out a record amount to the bankers. The improvement is basically reflected in two key liquidity-measuring indicators -- the volume of excess liquidity in banks and un

thefinancialexpress.com.bd

Banks see slow rebound from liquidity shortages
BB hands out record cash supports to bankers in woes
JUBAIR HASAN
Published :
Apr 26, 2024 00:22
Updated :
Apr 26, 2024 00:22

Cash-strapped banks seem to be slowly bouncing back from liquidity crunch on cash feeding by the central bank that has handed out a record amount to the bankers.

The improvement is basically reflected in two key liquidity-measuring indicators -- the volume of excess liquidity in banks and uninvested cash in vaults. The disposables marked a sharp rise this past February.

Excess liquidity includes various cash and cash-equivalent assets, including treasury bills and bonds, along with cash reserves other than liquid assets while uninvested cash means the credits that are available in the vaults.

According to Bangladesh Bank (BB) statistics, the volume of uninvested excess cash in the banking system had stood down at Tk 116.30 billion by June 2023. The figure plummeted further, reaching Tk 54.30 billion in November 2023 and Tk 51.56 billion in January 2024. Thereafter comes a rebound, the figure rising to Tk 76.43 billion by the end of February last, the data showed.

On the other hand, the excess liquidity in commercial banks was recorded Tk 1.66 trillion in June last year. The volume of the excess liquidity was Tk 1.41 trillion in November, Tk 1.63 trillion in December, 2023 and Tk 1.55 trillion in January this year.

But the figure rose to Tk 1.65 trillion in the following month of February, showing a sign of rebound, according to the BB data.

Seeking anonymity, a BB official told the FE that the liquidity situation in the banking industry started improving after months of tightness because of various policy supports of the central bank.

"The commercial banks have been fully meeting government's domestic bank-borrowing requirement after the central bank's decision skipping 'devolvement' to contain inflation from early this financial year (FY'24) and it put liquidity in banks under immense pressure," he said.

To give a breathing space for the credit-hungry banks, the central banker said, the banking regulator unrelentingly accepts all the fund-requirement appeals from the commercial lenders.

"As a matter of fact, liquidity feeding into the banks keeps rising significantly in recent months, which helps improve the liquidity in banks to a large extent."

According to the BB statistics, the central bank lent liquidity dollops amounting to Tk 633.47 billion in June 2023.

The volume of cash funnelled into the fund-starved banks further swelled to hit Tk 3.45 trillion in November, Tk 3.51 trillion in December and Tk 3.63 trillion in January 2024.

In February, the figure declined slightly, but stood over Tk 3.0 trillion.

Alongside the central bank's increased cash feeding, managing director and chief executive officer of Dhaka Bank Emranul Huq says, the credit demand is still on the downturn as port-import finance and offshore banking finance continue dropping in recent times.

"These could be the factors behind the improvement in two liquidity-measuring indicators," the bank's top executive told the FE correspondent.

Top executive of Jamuna Bank Mirza Elias Uddin Ahmed says the banking sector has enough stock of surplus liquidity. But there are few banks having some inherent problems like growing NPLs which face liquidity crunch as they are not getting credit support from interbank sources.

"So, they desperately need fund from the central bank. Otherwise, the liquidity situation is fine in the industry now," he added.​

 

[Saif]

A perplexing decision by Bangladesh Bank

Who will gain from its restrictions on media access?

www.thedailystar.net

A perplexing decision by Bangladesh Bank
Who will gain from its restrictions on media access?

VISUAL: STAR

The recent restrictions placed on journalists' access to the Bangladesh Bank (BB) have evoked understandable criticism from the journalist community as well as from Transparency International Bangladesh (TIB). It is quite a perplexing decision coming from a public institution which, by definition, is supposed to serve public interests. The media, too, is morally mandated to serve public interests. This it does by disclosing finance and banking related information, including any irregularities allegedly taking place in the sector. Access into Bangladesh Bank is thus crucial for any journalist covering the sector. We are, therefore, quite alarmed that the BB could take such a restrictive measure.

The central bank has reportedly instructed its security management and other departments not to allow journalists to enter its offices. The unprecedented restriction means that journalists covering the economy and finance will not be able to properly cover issues related to the economy. This is a disservice to the public but also to the government, which needs an honest appraisal of what is happening at the BB to make proper and timely interventions. Such reporting is all the more necessary at a time when the financial sector is facing severe challenges, including various irregularities, high inflation, and a dollar crisis that has affected many businesses and consumers.

Thus, journalists covering the economy and financial sector need full and unrestricted access to the Bangladesh Bank in order to get correct and verified information. Bangladesh Bank itself should also want to be accessible so that there is minimal risk of misinformation or rumours being circulated. All this makes its aforementioned decision rather difficult to understand.

The message emanating from such restrictions is not the kind that a democratic government would want to send to the people. It gives off the impression that this is being done to protect the interests of certain powerful quarters that have been playing a major role in the irregularities of the financial sector. We, therefore, urge Bangladesh Bank authorities to remove these restrictions so that journalists can have free access to the central bank as they did before. By exposing anomalies in the financial sector, journalists are upholding the people's right to know and helping the government by providing insights into this crucial sector so that problems are identified and solutions can be developed and applied. Surely this is a win-win system for all parties.​

 

[Saif]

Defaulting by top 3 borrowers could hit bank sector hard

Resilience in Bangladesh’s banking sector could be significantly affected if top three borrowers default on their loans, as outlined in a financial stability assessment report by the Bangladesh Bank...

www.newagebd.net

Defaulting by top 3 borrowers could hit bank sector hard
Staff Correspondent 29 April, 2024, 22:32

| — New Age file photo

Resilience in Bangladesh's banking sector could be significantly affected if top three borrowers default on their loans, as outlined in a financial stability assessment report by the Bangladesh Bank.

The report, covering the July-September quarter of 2023, indicated that such a default would have the most substantial impact on the sector's resilience, followed by a 3 per cent increase in non-performing loans.

For both shock scenarios, Capital to Risk-weighted Assets Ratio of the banking sector would fall below the minimum regulatory requirement of 10 per cent, it said.

A 3-per cent increase in non-performing loans or a default of the top three borrowers is likely to affect the banking sector's resilience significantly. Otherwise, the sector would remain resilient to all adverse shock scenarios.

The said report found a slight deterioration in the banking sector's resilience in terms of maintaining the minimum required CRAR and the number of non-compliant banks.

If the top three borrowers of each bank defaulted, nineteen banks would fail to maintain the minimum required CRAR, the report said.

If NPLs increased by 3 per cent, five banks would fail to maintain the minimum required CRAR.

The report said that among broader risk factors, credit risk remained the major one for the banking sector in terms of its impact on capital adequacy.

At end-September 2023, the CRAR of the banking sector stood at 11.08 per cent, marginally lower than that of the previous quarter.

At end-September 2023, profitability in the banking sector, as measured by return on assets and return on equity, slightly declined to 0.41 per cent and 7.46 per cent respectively from that of 0.43 per cent and 7.88 per cent in the preceding quarter.

During the review quarter, the domestic economy faced a number of challenges, including elevated inflation, a decline in foreign exchange reserves and devaluation of the local currency.

At the end of September 2023, annual average inflation increased to 9.29 per cent, 0.27 percentage points higher than the preceding quarter.

Wage earners' remittance inflow registered a decrease of 11.99 per cent from that of the preceding quarter and stood at $4.91 billion at the end of the review quarter.

At the end of September 2023, the gross foreign exchange reserves stood at $26.91 billion, while it would be $21.06 billion as per BPM6.

The Bangladeshi taka has been experiencing depreciation against the US dollar for several quarters, with the dollar rate reaching Tk 109.97 compared with Tk 105.92 at the end of June 2023.​

 

[Saif]

The concept of a public institution eludes our central bank

BB has recently restricted the journalists’ access for no reason in sight.

www.thedailystar.net

The concept of a public institution eludes our central bank

Illustration: Biplob Chakroborty

In the mid-1980s, military dictator HM Ershad banned BBC's journalistic operations in Bangladesh. In March 2022, the Taliban banned BBC's local language services in Afghanistan. It can thus be theorised that authoritarian rulers simply hate any journalistic investigations because the press is detrimental to their longevity. But for journalists' normal, professional access into a financial institution in Bangladesh to be barred is an untimely absurdity. It raises a question as to whether something is really wrong within Bangladesh Bank (BB) right now, given that the regulator is floundering in the theatrics of mergers and trying to convert rotten apples to fresh oranges by covering up multiple loopholes.

BB has recently restricted the journalists' access for no reason in sight. Of course, BB's policy restlessness in recent months surrounding default loans, the dollar's exchange rates, reserves, remittance, inflation, and mergers have drawn in more criticism than praise from the media. Meanwhile, journalists have been reporting BB's half-baked ideas and erratic steps. They are only doing their job, as they have been for so long. It is their noble duty to report any public or private sector wrongdoings so as to alert the nation. So what's the problem?

The BB governor has attempted to explain the decision as trying to protect some "top secrets" of the central bank. If the so-called top secrets aren't religiously private, he is supposed to share these with the public via the media. People have every right to know such information since the central bank is the regulator of banks which live and thrive on people's money. And the BB is not like police headquarters; it doesn't handle murder cases which may warrant confidentiality. The culprits BB might be dealing with are wilful defaulters who are at the root of plundering the financial sector and thus placing the economy on the cliff's edge. But even these cases shouldn't be kept secret. The BB governor is a custodian of the state's interests, not those of loan defaulters. Being a hundred percent transparent is the first point of his oath.

The culture of central banks addressing journalists has been there since the early 1990s. Economist Alan Blinder, the then vice-chair of the Federal Reserve System, championed the culture of making central banks more accessible for and accountable to the public. His campaign, "Fed listens," has been a paragon of how a central bank must ensure free flow of information. The journalists help establish communication between policymakers and the public. The current Fed chair Jeromee Powell regularly meets with journalists after every policy decision; so does the governor of the Bank of England, Andrew Bailey. The current president of the European Central Bank (ECB), Christine Lagarde, previously the chair and managing director of the International Monetary Fund (IMF), invites the press for question-and-answer sessions quite regularly. The ECB also welcomes public tours to improve the common understanding of how central banks work and what purposes they serve.

The IMF outlines four principles of communication by central banks. It asserts that communication should be clear, candid, and transparent. Second, communication should reach all segments of the population. Third, communication should take place regularly. Fourth, all economic agents should have equal access to the same information. Ben Bernanke, who chaired the Fed and won the economics Nobel Prize, made it clear that central bank governors are public servants, and it is their responsibility to provide the public with as much explanation of their decisions as possible. Former Reserve Bank of India governor Raghuram Rajan faced journalists quite confidently because he understood economics well and didn't fear being dethroned by any tycoon groups. None of those mentioned above resorted to using their spokesmen to justify their stances because the respective governments appointed them knowing that these leaders know how the economy functions and thus can speak for themselves. At any central bank, every information is public information, and hiding anything is equivalent to doing a disservice to the government.

The economy is facing high inflation and reserve depletion. The banking sector in particular is in its most appalling state, requiring constant checkups like a patient in the ICU. In such a situation, journalists are akin to those devices surrounding the patient which work tirelessly to report BB's financial symptoms to the public.

BB needs extensive interactions with journalists more than ever before, because journalists can read the public pulse and communicate with stakeholders efficiently. No other service can replicate the functions which the media carries out for the public. Journalists mustn't be seen as counterparties, nor are they enemies of state interests. BB should rather engage with journalists as well-wishers and counsellors in regards to policy steps. Had BB adopted this practice in early 2022 when the prevailing crises began to surface, the governor would have been regarded as a good policymaker by now. But BB's attitude towards journalists has recently been more bureaucratic than accommodative, and that is doing more harm than good.

Restricting journalists in the secretariat should in no way be a good example that is blindly replicated in an institution like BB or the Bangladesh Securities and Exchange Commission. These bodies deal with citizens' savings and investments and citizens have the right to inquire about what the custodians of their assets are doing with them at any point in time. Thus, preventing journalists from discharging their duties is unconstitutional and demeans the noble objectives of the Bangladesh Bank Order, 1972 which was framed under Bangabandhu's guidance after independence. BB must revise its approach to journalism by following global best practices and thus improving its knowledge base.

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

 

[Saif]

Ever piling up NPL is responsible for liquidity crisis of banks: ‘Terrible trio’ cause banks to bleed

Breaking News, International News & Multimedia

thedailynewnation.com

Ever piling up NPL is responsible for liquidity crisis of banks: 'Terrible trio' cause banks to bleed
1 May 2024, 12:00 am

Mega corporates accused of intimidating bankers
Anisur Rahman Khan

The banking sector is reportedly being dominated by three mega companies, which are allegedly mishandling bank assets, leading to a liquidity crisis and other financial irregularities.

Reports suggest that those who oppose the unjust demands of these companies face severe consequences, including humiliation and threats.

Both private and state-owned banks, including Janata, Rupali, Sonali, and Agrani, are grappling with significant liquidity issues. As part of the terms for a $4.7 billion loan from the International Monetary Fund (IMF), the government must reduce defaulted loans in state-owned banks.

Several high-ranking officials in the banking sector, speaking anonymously, have voiced concerns that these companies, with political backing, are exploiting bank assets, causing the sector to deteriorate rapidly.

They lament the lack of support from the central bank in pursuing legal action against these powerful entities.

One senior banker, requesting anonymity, emphasised the necessity of strict enforcement of laws against loan defaulters to enable banks to recover significant amounts of defaulted loans.

Failure to apply these laws rigorously is exacerbating the crisis facing financial institutions, he observed.

According to Bangladesh Bank data released recently, defaulted loans surged to Tk145,633 crore at the end of December 2023 from Tk120,656 crore at the end of December 2022 and Tk103,273 crore in the same period in 2021.

For example, the state-owned Rupali Bank has filed 3,217 cases against defaulted borrowers with the Artha Rin Adalat to recover over Tk 7,103 crore.

According to the Rupali Bank report, the total amount of the bank's default loans stood at Tk10,580 crore at the end of April 2023, and Tk7,103.08 crore of this massive default loan is stuck with 100 big borrowers.

According to multiple sources, the bank bears the burden of lending without proper scrutiny and investing in weak financial institutions to institute loans following its failure to recover the growing number of defaulted loans.

The Rupali Bank was lending to big businesses and individuals randomly but failed to recover loans on time, sources said.

As per data of the Rupali Bank show that Virgo Media (Tk 302.14 crore), Ibrahim Consortium (Tk 283.03 crore),Japan Bangladesh Security Printing and Papers Ltd (Tk 241.62 crore), Messers Prize Club general Trading Ltd (Tk 112.38 crore), Bangladesh Auto Rickshaw Chalak Samaboy Samity Ltd (Tk 42.93 crore), DSL Sweater Ltd (Tk 59.79 crore), Shafiq Steel (Tk 153.13 crore), Mabia Ship Breakers (Tk 151.93 crore), Water Heaven Corporation, Crystal Steel and Ship Breakers Ltd (Tk 147.38 crore), Jaso Allocating (Tk 66.64 crore), ND Grioup (Tk 49.99 crore), Setu International (Tk 39.48 crore), Fahad Garments (Tk 38.65 crore), Mastex Industries Ltd (Tk 34.77 crore), Bangladesh Auto Tempo Porter Cab Somoboy Samity (Tk 31.07 crore), Legacy Footwear (Tk 30.71 crore), Nasrin Zaman Knitwears Ltd (Tk 30 crore) Islam Khan Jute Mills (Tk 21.95 crore), Memory World (Tk 92.13 crore), Benitex Industries Ltd (Tk 379.81 crore), M/S Beautiful Jacket (Tk 140.2 crore) and Messers Dream Knitting (Bd) Ltd (Tk 105 crore) in defaulted loans to Rupali Bank.

Besides, Chattogram-based Nurjahan Group, AA Knit Spin Limited, HR Spinning Mill, Chattogram SA Group, M Rahman Steel, Jaz Spinning, Panna Textile, HZ Agro, Himalaya Paper and Board, Western Engineering, and Chowdhury Leather are also on the list of loan defaulters with Rupali Bank.

"The respective managers in all branches across the country have to submit updated reports regarding cases filed against the loan defaulters every day. The bank authority is very serious about realising the defaulted loans," Md. Shahedur Rahman, General Manager of Rupali Bank, told The New Nation.

Md. Shahedur Rahman, who is also the Rupali Bank board secretary, said that they are continuously operating drives as per the directives of the Board of Directors of the Rupali Bank.

A top banker, preferring anonymity, said that some big companies rescheduled their huge loan payments just to pay a small amount of money.​

 

[Saif]

Stressed loans in banks to remain elevated: Moody’s

The stressed loans in the banking sector of Bangladesh will remain elevated even after the central bank tightened the rules for classification of non-performing loans (NPLs), said Moody’s Investors Service.

www.thedailystar.net

Stressed loans in banks to remain elevated: Moody's

The stressed loans in the banking sector of Bangladesh will remain elevated even after the central bank tightened the rules for classification of non-performing loans (NPLs), said Moody's Investors Service.

Last month, the Bangladesh Bank tightened its definition of overdue installments for fixed-term loans, reversing a relaxation of classification and provisioning rules since April 2019.

Fixed-term loans are currently classified as overdue six months after their expiry date and are subsequently classified as non-performing when overdue for a further three months, implying 270 days past due. Cottage, micro and small credits are classified as NPLs when past due/overdue for six months.

From September 30, a loan will be treated as overdue if an instalment on a term loan is not paid within three months of its due date, while from March 2025 an instalment payment late by even one day will be considered overdue.

The period for classifying past due/overdue loans as NPLs remains unchanged.

"We expect the revised guidelines to increase levels of NPLs and provisions, which will strain banks' profitability in the near term," Moody's said in a report yesterday.

The removal of forbearance measures will push banks to recognise loans to weak borrowers as non-performing in the long term and set aside adequate provisions, a long-term credit positive because it will improve their resilience in times of stress, it said.

The global credit ratings agency, however, expects NPLs to increase by 50 basis points until September 2024.

"We expect stressed loans, including performing loans with modified payment terms, as well as NPLs, to remain elevated."

This is because banks are likely to step up collection efforts on overdue loans to contain higher levels of slippage to non-performing, and may also take advantage of relatively lenient guidelines to restructure overdue loans to contain the impact on profitability.

The revised guidelines are an outcome of the central bank's initiatives related to Bangladesh's programme with the International Monetary Fund to strengthen loan classification and provisioning rules, eliminate forbearance measures and align with global best practices.​

 

[Saif]

A legal perspective

FOR quite a few days, the news of banks and financial institutions merger has created a stir in the banking industry. This merger and acquisition has proved the...

www.newagebd.net

A legal perspective
by Md Badrul Millat Ibne Hannan 05 May, 2024, 00:00

| New Age

FOR quite a few days, the news of banks and financial institutions merger has created a stir in the banking industry. This merger and acquisition has proved the forecasting of economists and experts once again. Economists and experts had strongly opposed the approval of banks on political grounds. Business conglomerates with political clout have taken away these banks because of profit maximisation within a short time and for other reasons.

Experts assume that the banking sector is now on the brink of a disaster. Because the banking sector's total risky loans amounted to Tk 377,922 crore at the end of 2022, this development makes for an abstemious reading of the actual health of this vital sector of the economy. At the end of 2022, the banking sector's non-performing loans stood at Tk 120,649 crore, outstanding rescheduled loans at Tk 212,780 crore, and outstanding written-off loans at Tk 44,493 crore.

In the banking sector of our country, people commemorate the last three mergers and acquisitions, Bangladesh Shilpa Bank and Bangladesh Shilpa Rin Sangstha amalgamated, renaming Bangladesh Development Bank Ltd. It is now suffering from bad loans, which make up 42.46 per cent of its total loans. Here, mergers and acquisitions have failed.

On the other hand, in 2000, Standard Chartered Bank and ANZ Grindlays merged and named StanChat Grindlays Bank; after that, it was renamed Standard Chartered Bangladesh. In 2001, Bank Asia set a massive milestone by acquiring the business operations of the Bank of Nova Scotia (a renowned Canadian bank) in Dhaka, the first of its kind in the banking history of Bangladesh. It again repeated the performance by acquiring the Bangladesh operations of Muslim Commercial Bank Ltd, a renowned Pakistani bank. Although, Bank Asia launched its operations in 1999, it acquired these two banks within two years and pointed out to our eyes that if there is honesty, integrity, and capability, it is possible.

Recently, the Bangladesh Bank has issued a draft guideline for merger offering to the bidder banks, which will also be called transferee banks, to bid for the transferor bank, which is placed under moratorium and decided to be merged with another bank, with incentives including regulatory relaxation regarding minimum capital requirement provisioning, cash reserve ratio and statutory liquidity ratio requirements, liquidity coverage ratio, liquidity support, foreign exchange assistance, the option of Bangladesh Bank buying long-term bonds or debentures from the transferee bank at low rates, issuance of shares to raise capital, permission for subordinated bonds, tax incentives, and goodwill as an asset.

As per the regulatory duties of the central bank, it has categorised the scheduled banks into three categories: sound banks, stable banks, and distressed banks. Before going forward with the merger and acquisition agreement, the following cautions and considerations are to be re-conceived:

Non-performing loans: Merging banks need to carefully assess the non-performing loans of the weaker bank and develop strategies to address them effectively. Failure to address non-performing loans can impact the financial health of the merged entity.

Financial delinquency: Acquiring banks must evaluate the weaker bank's history of financial misconduct and take appropriate measures to mitigate any potential risks associated with such issues.

Employee homogenising: Merging banks need to contemplate the amalgamation of employees from both entities, ensuring a smooth transition and minimising any negative impact on the workforce.

Capital adequacy ratio: The capital adequacy ratio of the merged entity should be carefully assessed to secure compliance with regulatory requirements and maintain financial stability.

Dilution of earnings: Shareholders of the acquiring bank may experience diluted earnings after the merger, which could lead to possible legal issues.

Liquidity and capital management: Merging banks must carefully manage liquidity and capital to secure the smooth functioning of the merged entity and abstain from any adverse effects on customers and stakeholders.

Banking is the backbone of any economy, and the pursuit of mergers and acquisitions within this sector is a common occurrence worldwide. In Bangladesh, the financial sector has experienced a surge in merger and acquisition activities in recent decades, reflecting the industry's dynamic nature and the pursuit of growth and efficiency.

The terms 'merger', 'amalgamation' and 'acquisition' have not been defined under the Companies Act or Companies Rules. The term 'amalgamation', though not defined, is used in the Companies Act. In general, the following statutes are applicable to merger and acquisition transactions in Bangladesh: the Companies Act 1994, Section 228 and 229; the Securities and Exchange Ordinance 1969; the Securities and Exchange Commission Act 1993, (amendment May 1, 2021); the Bangladesh Bank Order 1972; the Bank Companies Act 1991, Section 49, Sub-section 1 (Ga), 76 (1), 77 (Ka), 77 (1), 77 (2), 77 (4), 77 (5), and 77 (16); the Financial Institutions Act 1993, (amendment 2023), Section 50; the Contract Act 1872; the Competition Act 2012; the Labour Act 2006 (amendment 2022); the Foreign Exchange Regulation Act 1947; and the Income Tax Ordinance.

Chronological steps such as proposal for merger, negotiations/bargaining, due diligence for the merger, disclosure and confidentiality, due diligence report submission, shareholders' and creditors' consent, scheme submission to the Bangladesh Bank, draft scheme examination, assets and liabilities valuation, transaction price, Bangladesh Bank approval, High court petition in regards to mergers and acquisitions and submission of certified copy of the High Court order to the Office of the Registrar of Joint Stock Companies And Firms need to be followed for a merger and acquisition completion.

Here are some international accounting standards and international financial reporting standards that are required since international rating agencies consider these standards based on the balance sheet and financial position, which reflect the overall scenario of the country.

International Financial Reporting Standard 3: Business Combination, which states merger and acquisition. IRFS 02: Share-Based Payment, IFRS 05: Non-Current Asset Held for Sale and Discontinued Operations, IFRS 07: Financial Instruments: Disclosure, IRFS 13: Fair Value Measurement, IAS 07: Statement of Cash Flows for Cash Generating Unit from Goodwill Valuation IAS 08: Accounting Policies, Changes in Accounting Estimates, and Errors, IAS 10: Enevts after the Reporting Period, IAS 12: Income Taxes, IAS 16: Property, Plant and Equipment, IAS 32: Financial Instrument: Presentation, IAS 36: Impairment of Assets, IAS 38: Intangible Assets, IAS 40: Investment Property and other related IFRS and IAS (if required).

Except for international financial reporting standards and international accounting standards, mergers and acquisitions will not convey mutual benefits to shareholders, depositors, or public trusts.

The i8nternational financial reporting standards and international accounting standards are a set of accounting rules for public companies with the goal of making company financial statements consistent, transparent, and easily comparable around the world. This helps for auditing, tax purposes, and investing.

As per the financial statements of some banks and financial institutes, the central bank is not fully following IFRS and IAS. As a result, commercial banks in mergers and acquisitions are not bound to follow these global standards in asset revaluation. The stronger banks undergoing mergers and acquisitions are to suck up weaker banks and NBFIs with high non-performing loans. So it is enormously sensitive in asset revaluation.

In this regard, the central bank can dictate the banks to follow the depicted IFRS and IAS. Asset revaluation at current market prices for mergers and acquisitions would create a catastrophic situation. If the current market price is higher than the original cost, there is a revaluation gain, which means the asset value has appreciated. So, to circumvent cataclysm and ensure shareholder and depositor rights, the Bangladesh Bank should fully embrace international standards in financial reporting.

Nevertheless, mergers and acquisitions devoid of IFRS and IAS can lead to difficulty in understanding financial stability when a strong bank proceeds with a weak bank's colossal NPL hardship. Likewise, by not following IFRS and IAS, investors and regulators may be in the dark about banks' health.

In mergers and acquisitions, there are matters of buying and selling, so every asset should be re-evaluated under international standards, which are dissimilar from general profit and loss accounts maintained by banks.​

 

[Saif]

Bangladesh Bank again dissolves National Bank board

The bank’s sponsor director Khalilur Rahman made the new chairman

www.thedailystar.net

Bangladesh Bank again dissolves National Bank board
The bank's sponsor director Khalilur Rahman made the new chairman

Bangladesh Bank has once again dissolved the board of National Bank.

Today, the central bank informed the managing director of National Bank through a letter about the cancellation of the bank's existing board of directors.

The banking regulator also formed a new board of directors and set the bank's sponsor director Khalilur Rahman as the new chairman, the BB letter read.

Earlier on December 21 in 2023, the central bank issued an order to dissolve the then board of National Bank and formed a new board.

The banking regulator then made Syed Ferhat Anwar, a former professor of the Institute of Business Administration under Dhaka University, the new chairman of the bank.

The central bank then took the move after Parveen Haque Sikder, a director of the commercial bank, wrote to the Bangladesh Securities and Exchange Commission as she fears that the then board may manipulate the next election of the bank's board of directors.

This time, the banking watchdog removed most of the previous directors, including Syed Ferhat Anwar and Parveen Haque Sikder.​

 

[Saif]

Banks bag windfall from record interest spread

Interest calculating in SMART formula comes as a boon for banking as banks bag windfalls from a record spread between the rates they provide to depositors and take from borrowers. Officials and bankers have said Bangladesh Bank's monetary-policy shift from monetary targeting to interest-rate targe

thefinancialexpress.com.bd

Banks bag windfall from record interest spread
Spread between lending, deposit rates 5.11pc in March
JUBAIR HASAN
Published :
May 06, 2024 00:40
Updated :
May 06, 2024 00:40

Interest calculating in SMART formula comes as a boon for banking as banks bag windfalls from a record spread between the rates they provide to depositors and take from borrowers.

Officials and bankers have said Bangladesh Bank's monetary-policy shift from monetary targeting to interest-rate targeting pays off for the country's commercial banks as they saw the widest spread in over nine years to March last.

Such leap between the difference of weighted average deposit and lending rates - called spread in banking parlance - gives some sort of respite to the banks which had witnessed their core incomes squeezing since the imposition of 9.0-percent lending cap in April 2020, according to sector-insiders.

According to data with the central bank, the weighted average spread rose to 5.11 per cent in March, up by 7 basis points from February's 5.04 per cent.

The official data showed the March spread figure as the highest probably since November 2014 when it was 5.12 per cent.

Seeking anonymity, a BB official said the spread started rising in July 2023 when the central bank introduced interest rate-related benchmark rate called SMART.

Now it rose to 5.11 per cent in March last as weighted average rates of deposits and lending were 5.20 per cent and 10.31 per cent respectively, according to the official.

The difference between lending and deposit rates was only 2.93 per cent in June last year before the SMART came into effect on the money market. Afterwards, it started increasing with the figure rising to 3.29 per cent, 3.33 per cent, 3.31 per cent, 3.34 per cent, 3.35 per cent, 4.66 per cent and 4.83 per cent in July, August, September, October, November and December in 2023 and January in 2024 respectively.

Managing director and chief executive officer of Mutual Trust Bank (MTB) Limited Syed Mahbubur Rahman says the banks have raised both deposit and lending rates in line with SMART rating paradigm, which is reflected in the spread situation.

Managing director and chief executive officer of Dhaka Bank Emranul Huq observes that the lending rate in banks keeps rising quickly because of significant increase in SMART rate every month since its introduction.

The deposit rate offered by the banks is also rising but the depositors get the gains once the tenure matures. On the other hand, the banks can charge increased rate from the fresh borrowers each month.

"That's why the spread is widening fast," the experienced banker says about the interest arithmetic.

Seeking anonymity, a top executive of a private bank said getting formal credits becomes extremely expensive, which is lessening the fund demands on the market.

On the other hand, there are banks having liquidity dearth in the existing contractionary monetary regime and they require credits to improve their balance sheet and offer higher rates to allure the depositors, he said.

"It means the difference between the weighted average rates of deposit and lending would come down in the coming few months," the banker hopes.​

 

[Saif]

A former governor’s unpleasant truths about the banking sector

Economists are always noted for telling unpleasant truths because they go by numbers, research, theory, and judgement. Rarely do politicians—who can manufacture arguments to suit their purpose—endorse economists who are objective. Former Bangladesh Bank Governor Dr Mohammad Farashuddin has unvei

www.thedailystar.net

A former governor's unpleasant truths about the banking sector

FILE VISUAL: REHNUMA PROSHOON

Economists are always noted for telling unpleasant truths because they go by numbers, research, theory, and judgement. Rarely do politicians—who can manufacture arguments to suit their purpose—endorse economists who are objective. Former Bangladesh Bank Governor Dr Mohammad Farashuddin has unveiled some truths about the country's banking sector where regulations have remarkably been relaxed in recent years. Seldom have we seen such blistering comments coming from a governor in Bangladesh's history. Farashuddin's statement, though commendable at a critical moment, creates enormous doubt over whether the government will really pay any attention to it.

The doubt is genuine because the looters are quite well-known to all of us, and they are flocking around the people in power. Not only have they indulged in misdeeds, but they are extravagantly empowered with high positions as well. To the bad luck of the nation, these people have been masquerading as the "true saviours" of the financial industry, if not that of the whole nation. These wolves in sheep's clothing, if not checked, will bring an economy of otherwise high potential down.

It would be a mistake for politicians to label Farashuddin as a supporter of the opposition. He was very well liked by Bangabandhu, who appointed him as his personal secretary. The Awami League government appointed him as governor of the central bank after coming to power in 1996. And most importantly, his performance at the helm of the central bank was academically sound and professionally pro-business.

Few retired bureaucrat-turned governors could do what he did. Dr Farashuddin remained committed to economic knowledge and the country's interest, not the interest of the wilful defaulters whose businesses always pretend to be in the red despite the economy's respectable growth. Sadly, growth is showing signs of a premature slowdown, justifying the clamours of economists who advocate bringing a semblance of law and ethics into business.

The great 18th-century economist Adam Smith once wrote, "Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice." Smith was so sure about his articulation that he asserted that all the rest would be brought about by the natural course of things once justice is safeguarded. The history of all developed countries has evidently proven that organised financial corruption and economic prosperity can never be siblings. They are mutually exclusive and many politicians in power seem to have brushed the trade-off aside for a game of personal wealth-making and very short-term interest.

Farashuddin's worry in this regard is quite explicit although he seems to be afraid of being mistreated if he speaks against the financial hooligans pampered by power. He literarily resorted to the poignant lines of Rabindranath Tagore—Morite chahina ami sundoro bhubone (I don't want to die in this beautiful world). So subtle was his sense of melancholy and humour.

The truth hidden under his humour points out that if high-scale bank looters are pardoned so easily, the banking sector's future must be cancerous, suggesting the emergence of further plunderers under the political coddling of the regime. His warning rightly echoes that of Dr Wahiduddin Mahmud, former economic adviser to the caretaker government, who allegorically labels the default culture as the rotten heart of the nation.

Some critics have recently labelled Dr Farashuddin's outburst at the seminar of the Economic Reporters' Forum (ERF) as his personal frustration for not being placed in a policymaking position by the regime. This is a defective interpretation of Farashuddin's standpoint. First, we need to judge whether he is statistically right about what he has said. Second, we need to check whether his recommendations don't serve him personally or his business. We get a "yes" in response to both these questions. His concern is that the family-based directorship proposal was passed at parliament without any resolution or debate. In fact, this law has turned many private banks into a mudir dokan—the single family-run petty shops sprawling in villages, fostering a perverse move of private banks from corporate structures to family dynasties.

The sneaky way of passing this family directorship law is the antithesis to the spirit of parliamentary democracy where we hope to see debates over economic policymaking. But there are many members of parliament who never utter a single word about anything during their tenure, while most of them are familiar with the art of accumulating personal wealth at magical speed. Thus, simply addressing the banking sector won't solve the current economic predicament. Parliament and the legal system must function better to make the economy as robust as it was before the pandemic.

Farashuddin is correct in pronouncing that some groups of people are taking bigger slices of the pizza—which we earned through independence. And hence, he is against the trend that brings more retired bureaucrats to politics. It will dampen the quality of bureaucratic services as we have already degraded the quality of our universities by infusing political enthusiasm. He is right in reiterating the unholy triangle of tax dodgers, bank defaulters, and money launderers. They are the same group of people who are dragging the economy to the cliff's edge, and waiting for the time to fly overseas with their trafficked fortunes.

This must be stopped for the sake of the nation where income inequality has been on an unbroken crescendo of unsustainability, defying any sensible records of peer nations. Putting a farmer in jail for defaulting on loans by Tk 1,000, while letting a bank looter sit beside government officials, signal a cancerous future for the financial industry, and Farashuddin's artistic portrayal of the injustice and asymmetry in this regard warrants serious attention from the government.

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

 

[Saif]

https://thefinancialexpress.com.bd/economy/bangladesh/poor-banking-sector-malgovernance-impunity-key-factors-says-dr-salehuddin

Poor banking sector: Malgovernance, impunity key factors, says Dr Salehuddin
FE REPORT
Published :
May 09, 2024 10:24
Updated :
May 09, 2024 10:24

Malgovernance and improper management, fuelled by political interventions, are the factors behind the present sorry state of the banking sector of Bangladesh, a former central bank governor has said.

A culture of impunity and undue benefits to loan defaulters and their allies in banks are also liable for this situation, according to Dr Salehuddin Ahmed.

"Governance and management failures are in place, because of which we see problems like corruption, money laundering and (loan) defaults."

Dr Ahmed made the observations at a public lecture on the country's banking sector at United International University (UIU) in Dhaka.

The UIU School of Business and Economics hosted the session as part of a public lecture series styled 'Bangladesh Corpus 2024'.

The noted economist gave a brief outline of the sector, which has become much vibrant after 2006 with the rise of digitalisation, use of information technology and many other tools.

Necessary guidelines, norms and laws are there for the banking sector, but it largely lacks compliance of conventional rules, according to him.

About the recent merger of banks, Dr Ahmed said the merger of the banks has not been directed by the Bangladesh Bank (BB) in a proper way.

"Actually, there is scope to restore weaker banks through setting proficient boards, employing independent directors and hiring right professionals."

Highlighting policy failure with default-loan regulations with improper mechanisms to reschedule and restructure them, thereby fuelling corruption, he said borrowing has become a business model at present.

"Borrowing, increasing your money, making foreign trips and defaulting on loans has become a smart business model now," he went on to say.

With only a 2.0-per cent repayment, one can become a free man now, according to the former BB governor.

"The central bank is giving concessions day by day, whereas nobody is paying back."

Even the board of directors at most private banks are not competent, they sit there and provide loans without following the norms, says Dr Ahmed.

He suggested that the Bank Company Act be amended be amended to minimise the scope for incompetent directorships. Suggesting a way forward for the banking sector, the former governor said the central bank should focus more on ensuring governance to reinstate the sector.​

 

[Saif]

Bank sector battered by people with political clouts: economists

Bangladesh’s banking sector has suffered a serious setback over the years, as people having political clouts received from banks various benefits beyond legal scopes, economists said...

www.newagebd.net

Bank sector battered by people with political clouts: economists
Staff Correspondent 16 May, 2024, 22:49

Former Bangladesh Bank governor Mohammed Farashuddin speaks at a programme at the Bangladesh Institute of Development Studies office in the capital Dhaka on Thursday. Economic Research Group chairman Wahiduddin Mahmud, prime minister's economic affairs adviser Mashiur Rahman, East West University vice-chancellor Shams Rahman and BIDS director general Binayak Sen were present. | — Press release

Bangladesh's banking sector has suffered a serious setback over the years, as people having political clouts received from banks various benefits beyond legal scopes, economists said.

At a programme at the Bangladesh Institute of Development Studies office in the capital Dhaka on Thursday to launch a book titled 'Bangladesh's Future Development: Agenda for Reform', they said that widespread political influences in the financial sector caused lack of governance and deviation from principles.

The BIDS and the East West University organised the launching ceremony of the book written by former Bangladesh Bank governor Mohammed Farashuddin.

At the event, Wahiduddin Mahmud, chairman of the Economic Research Group, observed that governments assuming power without fair elections often resort to patronage politics, granting undue benefits to influential groups in an attempt to establish control over society.

He said that the undue benefits to the influential quarter affected honest entrepreneurs and damaged business environment in the country.

There are key sectors in the country that the government should shield them from political interferences, Wahiduddin said.

'The current regime is an authoritarian government cloaked in a formal democratic framework,' Wahiduddin said, adding that assessing its popularity was complicated due to the absence of fair electoral processes.

He also emphasised that democratic rights, freedom of expression and human rights are crucial for the economic development of a nation.

There is no instance in the world where a country achieved economic development solely through infrastructure development without investing in human capital, Wahiduddin said.

Farashuddin suggested a three-year economic reform programme for the banking sector, saying that defaulted loans affected economy severely.

Criticising the practice of loan rescheduling, he remarked that top bank defaulters were receiving preferential treatment.

Farashuddin observed that loan defaulting, tax evasion and money laundering are all interrelated, often involving the same powerful group in these activities.

He also suggested political and constitutional reforms to ensure economic reforms in the country.

He expressed concern that political leaders often desire economists to serve as their subordinates, which should not be the case.

Instead, political leaders should make decisions based on recommendations from economists, Farashuddin said.

According to the economist, maintaining the taka's exchange rate artificially high for a decade, imposing a cap on interest rates for over two years, and having multiple exchange rates severely affected the economy, and recovery would take a considerable amount of time.

Centre for Policy Dialogue executive director Fahmida Khatun said that political influence made the country's banking sector weak.

The nation is now grappling with the consequences of poor governance in the financial sector, a situation that did not arise overnight, she said.

Fahmida pointed out that prioritising investment solely in infrastructure, while overlooking allocations for education and public health, has created an imbalance in the country.

She emphasised that such lopsided development would not be sustainable.

Prime minister's economic affairs adviser Mashiur Rahman, East West University vice-chancellor Shams Rahman, BIDS director general Binayak Sen, economist MM Akash and BIDS research director Kazi Iqbal, among others, spoke at the event.​

 

[Saif]

Chinese consortium seeks digital banking licence in BD

A group of Chinese nationals, in collaboration with Bangladeshi partners, has applied for a digital bank licence in Bangladesh, according to documents of the Chinese Embassy in Dhaka. The consortium submitted the application to the Bangladesh Bank under the name China Bangla Bank Plc. As a joint

thefinancialexpress.com.bd

Chinese consortium seeks digital banking licence in BD
REZAUL KARIM
Published :
May 18, 2024 00:16
Updated :
May 18, 2024 00:16

A group of Chinese nationals, in collaboration with Bangladeshi partners, has applied for a digital bank licence in Bangladesh, according to documents of the Chinese Embassy in Dhaka.

The consortium submitted the application to the Bangladesh Bank under the name China Bangla Bank Plc.

As a joint venture, China Bangla Bank Plc has pledged an initial investment of approximately $10 million, with a further commitment of $200 million over five years, show the papers.

The embassy expects the venture to generate over 7,000 jobs in Bangladesh.

The infusion of Chinese technical expertise and technology investment will indirectly enhance financial inclusion for marginalised communities. This aligns with the bank's goal of extending banking services to over 75 million under-served individuals, according to the documents.

The China Council for the Promotion of International Trade Guangdong Committee (CCPIT Guangdong Committee) recently contacted the Economic and Commercial Office of the Chinese Embassy in Bangladesh to initiate communication with relevant Bangladeshi agencies regarding the application.

A high-powered team of the Bangladesh Bank previously visited China, where the issue of digital banking operations by Chinese entrepreneurs was discussed, a source said.

When contacted, Bangladesh China Chamber of Commerce and Industry Secretary General Al Mamun Mridha said Bangladesh has made significant strides in digital adoption in recent years. For this, there is no alternative to digital banking.

He added that digital banking offers greater convenience, security and ease of transferring funds compared to existing banking services.

Mr. Mridha claimed that China's experience in digital technologies would be beneficial for Bangladesh's digital banking sector if Chinese investors were involved.

The Bangladesh Bank has already granted initial approval to eight digital banks to meet customer needs in the digital age and serve the unbanked population.

Unlike traditional banks, they will operate solely online with a central headquarters and no physical branches.

Digital banking allows customers to conduct banking transactions and access services remotely, via a website or mobile app, without needing to visit a physical branch.

Two new digital banks, Nagad Digital Bank PLC and Kori Digital Bank PLC, have already received letters of intent (LoI) and are preparing to launch operations soon.

The central bank will monitor their performance over the next six months, a central bank source said.

The letter of intent outlines a timeframe for the digital banks to develop their infrastructure under central bank supervision.

Three other banks -- Smart Digital Bank PLC, North East Digital Bank PLC and Japan-Bangladesh Digital Bank PLC -- will receive their letters of intent after six months, based on the performance of the initial two.

The Bangladesh Bank has also approved three existing banks to offer digital banking services: BRAC Bank with bKash, DG-10, a consortium of 10 private commercial banks, and Digital Bank PLC led by Bank Asia.​

 

[Saif]

Banks are being merged due to lack of farsightedness

Discover the reasons behind the merging of banks in Bangladesh due to lack of farsightedness and the impact on the country's overall economy, inflation, and dollar crisis in an exclusive interview with Dr. Zahid Hussain, former chief economist of the World Bank’s Dhaka office.

en.prothomalo.com

Interview: Zahid Hussain
Banks are being merged due to lack of farsightedness
Zahid Hussain

Dr Zahid Hussain is former lead economist of the World Bank's Dhaka office. In an interview with Prothom Alo's AKM Zakaria, he talks about the country's overall economy, the dollar crisis, bank mergers, inflation, lifting subsidies in the power sector and the budget.
Updated: 20 May 2024, 12: 39

Prothom Alo : There had been apprehensions for quite some time that the economy would be at risk. Economists had been warning about this too. Compared to the state of the economy three or four months ago, have things deteriorated further?

Zahid Hussain It certainly hasn't improved. None of the indicators regarding the economy are in good shape. If we consider the available data on inflation, reserves, revenue income, the financial sector's dwindling resources, negative imports, the GDP or industrial growth – the situation has taken a nose dive. The only area where there is some respite is in remittance. For the past few months, remittance of USD 2 billion (USD 200 crore) has been coming in monthly. The export figures don't look bad either but are these figures accurate? They don't tally with reality.

Prothom Alo : Does that mean the economists' apprehensions were not taken into consideration? Or were the right steps not taken at the right time?

Zahid Hussain I would say that timely measures were not taken. Now some measures are being taken which can be called correct. But then in certain cases, these are confusing – such as in the case of the foreign exchange market and management. It is difficult to say whether these measures will yield results. There have been assurances and promises that all sorts of things will be done regarding the monetary policy, the exchange rate and so on. We must wait to see if this is reflected in the forthcoming budget.

The structural reforms that were needed at this time, have not taken place. The regulatory bodies did not, or could not, play their due role in establishing good governance in the financial sector. It had been expected that they would have an active role regarding weak institutions. The bottom line is, the initiatives and policies required for the situation, were not taken up.

Prothom Alo : Why could these measures not be taken? What is your opinion?

Zahid Hussain The path chosen to resolve the problems are, in many cases, not correct. Then again, I do not think that the government or the policymakers are doing this out of ignorance. Let me give an example. The 9 per cent ceiling on interest has now been lifted. We have gone back to the previous policy. It is a misconception that business will do well if interest rates are low. Why was this done then? This was done to facilitate certain vested interest quarters. The consideration was possibly that if loans can be given cheaply, it will be possible to remain in power.

We see that same wrong policy in the case of market management. When the prices of onion and such commodities go up, we talk of market manipulations. What does the government do then? It fixes a retail price. This can never work. The government does not touch, or does not want to touch, the importers, the stockists or the wholesalers. How can it be effective it if does not intervene where necessary?

Prothom Alo : We see the dollar price scaling up. Now the government has used the crawling peg system to devaluate the taka. Many say that this should have been done earlier. What do you say? Can this crawling peg measure make any difference now?

Zahid Hussain There are questions about whether it is actually a crawling peg that has been put into effect here. If the system put in place is actually crawling peg, then there must be space for fluctuation. Here we see that Bangladesh Bank has fixed a rate for the dollar, that is, 117 taka. The Bangladesh Bank circular doesn't mention how far it will rise or fall above or below this. According to the media, it may fluctuate up or down by a taka. Then there is matter of the buying and selling rate of the dollar. This is not clear. We see the "peg" fixed at 117 taka, but we don't see the "crawling".

The question is, if we cannot pay more than 118 taka for the dollar, will the inflow of dollars though formal channels drop? The market itself doesn't believe this rate will last. The currency market has become volatile. Since there is no possibility of the dollar rate falling, exporters who receive their bills in dollars may delay bringing in their dollars in the hope of the dollar price going up further.

The crawling peg system is in place in Nicaragua and Vietnam. Nicaragua's situation is different. And in Vietnam, the central bank fixes the rate every day based on the previous day's market. Buying and selling can be done at a 5 per cent fluctuation, up or down. Interestingly, IMF has given recognition to what is being done in Bangladesh in the name of crawling peg. I feel that they know something that we don't know. Perhaps they have been told the ceiling of the dollar buying and selling rate.

We may be creating special zones for foreign investment, but why will they invest here if they have apprehensions regarding the country's macro-economy, if they feel they will not be able to take their money back? They have alternative countries for their investment.

Prothom Alo : What do you think of the interest rate being wholly opened up?

I think it is good, albeit late. There is no need to worry about where the interest rate will go or whether it will spiral very high. It will be determined by bank-customer relations and that is nothing new. Problems crop up when the interest rate is fixed with no considerations to the risks involved. Now there will be scope to amend that. The interest rate can be higher for loans where there are risks. And where the risks are low, the banks can lend with low interest rates.

Many may feel that the financial institutions can hold the borrowers hostage by keeping the interest rates open. I feel that this will not happen. Our regulatory authorities must keep their eyes open and remain alert in this regard. No irregularities can be condoned.

Prothom Alo : The downslide of reserves can't be stopped either. Is there anything to be done here?

Zahid Hussain If the currency exchange is left to the market, then there is chance of the reserves increasing. However, the transparency of the market must be ensured. If Bangladesh Bank creates a platform in cooperation with BAFEDA, the the rate at which the various banks buy and sell dollars every day, can be availed on this platform. If the official market rate is near that of the unofficial rate, then a big obstacle to dollars coming through formal channels will be lifted. Transparency in exchange market will leave no room for manipulations.

Prothom Alo : Due to the dollar crisis, foreign companies are unable to take their profits back home. During his recent visit, the US assistant secretary of state Donald Lu expressed his concern in this regard. Will the dollar crisis discourage foreign investment?

Zahid Hussain It is very natural that there will be an impact on foreign direct investment. Those who are to come to this country with foreign investment, will lose confidence. They see that there is no continuity in policies here. We may be creating special zones for foreign investment, but why will they invest here if they have apprehensions regarding the country's macro-economy, if they feel they will not be able to take their money back? They have alternative countries for their investment.

Prothom Alo : Inflation emerged as a serious problem worldwide since the Ukraine war. Everyone managed to get things under control, but why not us? Even Sri Lanka which had faced bankruptcy managed to speedily tackle the situation.

Zahid Hussain We have to take into consideration what are the weapons with which inflation can be tackled. The central bank had the monetary policy, the government has the fiscal policy and the regulatory authority. We took the reverse route with the monetary policy. Money was printed to meet the budget deficit. Rather than taking contractionary measures, the budget was expanded. In order to save dollars, tariff on commodities was increased. This increased inflation further. After the outbreak of the Ukraine war, everyone increased interest rates, while we reduced interest rates. There was talk about savings in the revenue policy, but this was not reflected in reality. In market management, we fixed prices at the retail level, but took no measures against those manipulating the market. We did not use the weapons we had to control inflation.

In no way can there be any decrease in allocations for the health, education and social safety net sectors. On the contrary, allocations to these sectors should be increased. People may question the spending capacity in these sectors, but that cannot be an excuse to cut allocations. Focus should be on why the funds can't be spent. The procedures must be simplified
Prothom Alo : Loans are being taken from IMF because of the economic crisis and they have laid down all sorts of terms and conditions. Is their involvement yielding results?

Zahid Hussain We have to see how it was before IMF became involved and how it is after. Over a year has passed, but we are yet to see any results. They have given all sorts of policy advice. Implementation of some of the recommendation has started. The interest corridor policy has been adopted, the taka has been devalued, an automatic system has been put in place to determine the price of fuel oil. Our biggest area of concern is whether inflation has lessened or not, whether reserves have increased. We can say some work has been carried out, but this has had no impact so far. And we must bear in mind that not all of IMF's advice will be effective.

Prothom Alo : Meanwhile, in keeping with IMF conditions, the government is reducing subsidy on electricity, sending electricity costs up. This is an extra burden on the people already floundering under the weight of inflation.

Zahid Hussain IMF has said that there can be no subsidies, particularly in the case of energy and power. There is a link between power production and environment and climate change. In our country the government buys electricity at high costs and sells it to the people at low costs. There are two ways to reduce this subsidy. One, increase the price of electricity. Two, reduce the government's costs in purchasing electricity. The government took the easy way out of hiking power prices to slash subsidies. But it took no measures to slash corruption in this sector and to move away from the illogical deals to purchase power from private producers. During the quick rental deal, there were conditions that even if power is not generated, capacity charge must be paid. The term of the contract is over, but the government simply renews it again and again. The government could save a lot of money by taking up a 'no power, no pay' policy. But instead of doing that, the price of electricity is being increased.

The government can also save a lot of money by load management. Power can be purchased first from producers that can provide power at the lowest cost, then gradually from others according to price. Power can be bought at lower costs in winter when the demand is less. The government can save a lot of money by applying these methods of loan management. A study of the World Bank says that the government can save up to around USD 1 billion (USD 100 crore) by means of proper load management.

Prothom Alo : So what has happened about the bank mergers? It looks like Bangladesh Bank's initiative has failed.

Zahid Hussain The government adopted 'prompt correction action' or PCA to address the banking sector problems. Weak banks were divided into four categories. These banks were supposed to have been given a chance to overcome their weaknesses. If they failed to do so, then they could face termination, acquisition or merging with another bank. But it is being said that this will be implemented from 2025. Why? What was the problem is doing that from now?

Instead, Bangladesh Bank took measures to merge weak and bad banks with some good ones. This provoked negative reactions. A sense of anxiety was seen among the good banks. This initiative has been suppressed for the time being. If measures were taken in accordance to the PCA, at least some process would have started. Instead of doing so, banks are being merged due to a lack of farsightedness.

Prothom Alo : After the hike in the dollar price, there is talk of stopping incentives in the export sector. What do you think about that?

Zahid Hussain Even if the price of the dollar did not increase, I would still be in favour of reevaluating the matter of incentives in the export sector. We have provided incentives to the readymade garment sector as well as various other export-oriented industries. The main objective was to diversify exports. This was hardly effective.

Also, after LDC graduation, we will have to maintain WTO standards. That means we will not be able to provide incentives to many industries, even if we want to. That is why we should wrap up the matter of incentives from beforehand. And now in place of 84 taka, we are getting 117 taka per dollar. So there is no need for incentives. There is no scope to keep any industry alive on life support.

Prothom Alo : The budget is ahead. How should the budget be, given the prevailing economic condition? What would some of your basic recommendations be?

Zahid Hussain I would like to place stress on certain factors regarding the coming budget. Firstly, expenditure must be curtailed, wasteful expenditure must be dropped with contractionary policies particularly in the purchase of vehicles, construction of buildings and travel. And in no way can there be any decrease in allocations for the health, education and social safety net sectors. On the contrary, allocations to these sectors should be increased. People may question the spending capacity in these sectors, but that cannot be an excuse to cut allocations. Focus should be on why the funds can't be spent. The procedures must be simplified.

Secondly, we hear of certain good measures being taken in the case of revenue. We agree that revenue income must be increased, but not by increasing tax rates. The concessions in place regarding taxes must be curtailed and the loopholes in revenue collection must be closed. A fully self-assessment system must be introduced in income tax.

Thirdly, the budget deficit should be made a low as possible. Initiatives must be taken to meet the deficit with funds in the pipeline, the loans and assistance that have been committed so far, by making an effort to avail low-interest long-term loans and cutting expenditure from our own funds.

Prothom Alo : Thank you.

Zahid Hussain Thank you too.​

 

[Saif]

Only 8 local banks in good shape: Bangladesh Bank report

Only eight local banks are in good condition, according a Bangladesh Bank report. The BB’s financial stability department has recently prepared banks’ health index and...

www.newagebd.net

Only 8 local banks in good shape: Bangladesh Bank report
Staff Correspondent 11 March, 2024, 00:38

A file photo shows the Bangladesh Bank headquarters in the capital Dhaka. — New Age photo

Only eight local banks are in good condition, according a Bangladesh Bank report.

The BB's financial stability department has recently prepared banks' health index and HEAT map on the basis of June 2023 ending half-yearly financial performance.

According to the BB report, 16 banks, including eight local and eight foreign banks, are in good condition.

These banks are Prime Bank, Eastern Bank, NCC Bank, Midland Bank, Bank Asia, Shimanto Bank, Jamuna Bank, Shahjalal Islami Bank, Bank Alfalah, Woori Bank, HSBC, Commercial Bank of Ceylon, City Bank NA, Habib Bank, Standard Chartered Bank and State Bank of India.

The BB report said 16 banks were in the green zone, meaning their financial health was good, whereas 29 banks were in the yellow zone, meaning their health was something in between good and fragile.

Nine banks, including four state-run ones, were in the red zone, meaning their financial health was fragile.

The nine banks are Bangladesh Commerce Bank, Padma Bank, BASIC Bank, National Bank of Pakistan, National Bank, Janata Bank, Agrani Bank, Rupali Bank and AB Bank.

The yellow zone contains two state-owned commercial banks, Bangladesh Development Bank and Sonali Bank, 19 conventional private commercial banks and eight Shariah-based islamic Banks.

To read the rest of the news, please click on the link above.​

 

[Saif]

Sonali Bank’s e-Wallet recognised as best innovation

Sonali e-Wallet, the mobile app of Sonali Bank, has been recognised as the best innovation by the Financial Institutions Division of the Ministry of Finance for implementing e-governance and innovation plans for FY24.

www.thedailystar.net

Sonali Bank's e-Wallet recognised as best innovation

Sonali e-Wallet, the mobile app of Sonali Bank, has been recognised as the best innovation by the Financial Institutions Division of the Ministry of Finance for implementing e-governance and innovation plans for FY24.

Waseqa Ayesha Khan, state minister for finance, handed over an award to Md Zahirul Islam, deputy general manager of the bank, at a function at the finance ministry in the capital on Tuesday, the bank said in a press release.

To read the rest of the news, please click on the link above.​

 

[Saif]

Banking sector being abused by oligarchs: CPD

Oligarchs are abusing the banking systems to achieve their goals, causing harm to good governance, transparency and accountability in the financial sector, say a number of economists and experts.

www.thedailystar.net

Banking sector being abused by oligarchs: CPD

Oligarchs are abusing the banking systems to achieve their goals, causing harm to good governance, transparency and accountability in the financial sector, say a number of economists and experts.

There is distrust in the banking sector, which impacts the entire financial sector, they said at a dialogue organised by the Centre for Policy Dialogue at a city hotel yesterday.

Bangladesh Bank's weakness in exerting its authority; influential quarters' pressure on it; frequent policy changes; lack of punitive measures against errant banks; dual policies; and inadequate merger decisions created people's distrust of banks.

To read the rest of the news, please click on the link above.​

 

[Saif]

Broad reform agenda vital to restore trust in banks: CPD

The CPD said commercial banks need to be strengthened, the independence of the Bangladesh Bank should be upheld, a conducive legal environment must be created, and a banking commission needs to be set up.

www.thedailystar.net

Broad reform agenda vital to restore trust in banks: CPD

The Centre for Policy Dialogue (CPD) yesterday urged the government to reduce bad loans and establish good governance in the banking sector as part of its suggestions aimed at healing the persisting ills of the key sector.

"A comprehensive reform agenda should be devised and implemented to overcome the banking sector's ongoing challenges," it said.

The think-tank's recommendations came at a dialogue titled "What Lies Ahead for the Banking Sector in Bangladesh?" at the Lakeshore Hotel in the capital.

The CPD said commercial banks need to be strengthened, the independence of the Bangladesh Bank should be upheld, a conducive legal environment must be created, and a banking commission needs to be set up.

To read the rest of the news, please click on the link above.​

 

[Saif]

Loans, deposits rise in Islamic banks despite severe liquidity crisis

Islamic banks' outstanding loans rise by 1.43%, deposits 1.27% in February than January

www.thedailystar.net

Loans, deposits rise in Islamic banks despite severe liquidity crisis
Islamic banks' outstanding loans rise by 1.43%, deposits 1.27% in February than January

Outstanding loans and deposits both increased in full-fledged 10 local Islamic banks in February this year although six of them have been facing severe liquidity crisis for more than a year.

Outstanding loans at the 10 banks stood at Tk 455,525 crore, up by Tk 6,452 crore from a month earlier, according to the latest data of the Bangladesh Bank.

At the same time, deposits in those banks hit Tk 380,066 crore, up by Tk 4,762 crore from January.

Massive loan irregularities have been taking a huge toll on six Islamic banks: Islami Bank Bangladesh, Social Islami Bank, First Security Islami Bank, Union Bank, Global Islami Bank and ICB Islamic Bank.

The rest four—Al Arafah Islami Bank, Standard Bank, Exim Bank and Shahjalal Islami Bank—have been doing comparatively well, industry insiders said.

The money being added in the form of interest has also played an important role for the increase in Islamic banks' outstanding loans and deposits in February, experts said.

Despite being in a bad shape, the problematic six are still disbursing loans, which is fuelling the outstanding loans at Islamic banks, they added.

The six have been facing shortfalls in cash reserve ratio and statutory liquidity ratio for a long time along with being hit by a deficit at their current accounts with the central bank.

Some of them continue to take liquidity support from the banking regulator, said a senior official of the Bangladesh Bank seeking anonymity.

Some Islamic banks are largely involved in loan irregularities, which have deteriorated their corporate governance, Mohammed Nurul Amin, former chairman of the Association of Bankers Bangladesh, told The Daily Star recently.​

 

[Saif]

Nagad Digital Bank becomes country’s first scheduled digital bank

Bangladesh Bank gave digital bank licence to Nagad today

www.thedailystar.net

Nagad Digital Bank becomes country's first scheduled digital bank
Bangladesh Bank gave digital bank licence to Nagad today

Nagad Digital Bank PLC has become the first company to receive a digital bank licence given by the Bangladesh Bank (BB).

The BB today listed Nagad Digital as a scheduled bank, according to a notice of the banking watchdog.

"We have been advocating for a digital bank to transform Bangladesh into a smart economy through cashless transactions," Tanvir A Mishuk, founder and CEO of Nagad Ltd, said after receiving the licence at a programme at the Bangladesh Bank headquarters in Dhaka.

The board of directors of the regulator gave the final approval for Nagad on May 28 after it met the criteria mentioned in the letter of intent (LoI) handed over to it in October last year.

Nagad Digital Bank has issued 12.5 crore shares among seven sponsors. Of them, three companies -- Osiris Capital Partners (USA), Blue Haven Ventures (USA) and Finclusion Ventures Pte Ltd (Singapore) -- hold more than 10 percent shares.

The remaining four shareholders are: Zen FinTech (USA), Trupay Technologies, Farhan Karim Khan and Fintechtual Holdings Ltd, the only local shareholder.

Meanwhile in another notice, the banking regulator gave go-ahead to Osiris Capital, Blue Haven and Finclusion to hold more shares than the directors' allowed limit quoted in the country's existing banking laws.

Under the present Bank Company Act, a person, organisation, company, or member of the same family cannot hold more than 10 percent share directly or indirectly in a company.

However, the permission for Nagad came after the finance ministry extended the exemption under a provision of the Bank Company Act 1991 on March 27.​

 

[Saif]

Surge in state-owned bank bad loans warrants special attention

A SURGE in non-performing loans in state-run banks, already plagued by non-performing loans of about 25 per cent of the total outstanding loans, shows the failure of the authorities to go tough on loan defaulters. This also shows the futility of concessions that the authorities have earlier...

www.newagebd.net

Surge in state-owned bank bad loans warrants special attention
07 June, 2024, 00:00

A SURGE in non-performing loans in state-run banks, already plagued by non-performing loans of about 25 per cent of the total outstanding loans, shows the failure of the authorities to go tough on loan defaulters. This also shows the futility of concessions that the authorities have earlier given to loan defaulters. Non-performing loans in the six banks soared, as Bangladesh Bank figures show, by Tk 6,805 crore in January–March. Defaulted loans in the banks surged to Tk 85,870 crore in March, up from Tk 79,065 crore in December 2023 and Tk 60,642 crore in March 2023. Defaulted loans in the banks account for almost 60 per cent of the total default loans in the banking sector. The banks are Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank, Bangladesh Development Bank and BASIC Bank. The defaulted loans of Janata Bank skyrocketed to a record Tk 30,495 crore in March from Tk 25,009 crore in December 2023, accounting for 31 per cent of its total loan disbursement. Non-performing loans at Agrani Bank account for 28 per cent of its total disbursement while bad loans at Sonali and Rupali account for 14.84 per cent and 21 per cent of their respective loan disbursement. Non-performing loans at BASIC and Bangladesh Development Bank account for a staggering 63 per cent and 33.97 per cent of their total respective loan disbursement.

To read the rest of the news, please click on the link above.​

 

[Saif]

Islamic banks' deposits, investments on wane

A crisis of confidence among clients following massive lending malpractices lands Islamic banking in Bangladesh in a quandary with liquidity crunch bedeviling their operations, according to official disclosure. From deposit to investment, and even in case of wage earners' remittance, the shariah-

thefinancialexpress.com.bd

Islamic banks' deposits, investments on wane
JUBAIR HASAN
Published :
Jun 11, 2024 00:54
Updated :
Jun 11, 2024 00:54

A crisis of confidence among clients following massive lending malpractices lands Islamic banking in Bangladesh in a quandary with liquidity crunch bedeviling their operations, according to official disclosure.

From deposit to investment, and even in case of wage earners' remittance, the shariah-based banking operations keep losing their share in recent months, which becomes a matter of concern particularly to a section of unconventional bankers.

According to Islamic banking-related statistics of Bangladesh Bank, the country's central bank, Islamic banking held 23.86 per cent of the entire deposit portfolio with the country's banking system, as of December 2023.

But, on a slide, the share came down to 23.56 per cent in January 2024 and dropped further down to 23.44 per cent in March.

In terms of investment, such unconventional banking accounted for 24.81 per cent of the total investment made through the banking system up to last December. But their share rose to 28.92 per cent in January. Thereafter, a downturn came: the shariah-based banks saw their share drop to 24.86 per cent until March 2024.

Such massive fall of share was also observed in remittance earning, considered one of the main strengths of such banking operations. The Islamic banking bagged 47.92 per cent of the country's overall remittance earnings through the formal channel. In the following month was there a turnaround with the share having increased to 51.57 per cent.

But, since then, the share has shrunk continuously to reach 41.46 per cent and 37.95 per cent in February and March respectively, according to the central bank's data.

Seeking anonymity, a BB official said there were a number of media reports regarding massive-scale loan-related irregularities in these unconventional banks which might shatter people's confidence.

"These could be a reason behind such fall in market share," the central banker said.

Managing director of an Islamic bank, who preferred not to be quoted by name, said savers started diverting their funds into the conventional banks despite their various steps to convince them.

"As a matter of fact, the growth of deposits in such banks slowed down in recent times, which is probably reflected in the data. The contribution of the shariah-based banks in terms of receiving remittance was huge even a few months ago but it has dropped remarkably in recent times.

"And it is a matter of serious concerns for us. But we're trying our best to improve the situation," he added.

A week ago, American credit-rating agency Fitch said liquidity shortages were still affecting Bangladesh's Islamic banking sector, which is more vulnerable than the conventional banks.

It said though the Islamic-banking market share is sizable in Bangladesh, it has been stagnant over the past two years.

The agency attributed the rot partly to the flight of deposits, governance issues and comparatively lax prudential requirements for Islamic banks.

However, some Islamic banks have been perfirming well in an adverse environment.​

 

[Saif]

Bank sector needs overhaul to rescue economy

Economist Ahsan H Mansur on Wednesday said that the country’s economy would collapse if a strategy for restructuring the ailing banking sector was not taken straightaway...

www.newagebd.net

Bank sector needs overhaul to rescue economy
Staff Correspondent 12 June, 2024, 22:26

Metropolitan Chamber of Commerce and Industry, Dhaka president Kamran T Ahmed welcomes economic affairs adviser to the prime minister Mashiur Rahman at a post-budget discussion organised jointly by the MCCI and the Policy Research Institute at the MCCI auditorium in the capital Dhaka on Wednesday. Economist Ahsan H Mansur and PRI chairman Zaidi Sattar, among others, were present. | Press release

Economist Ahsan H Mansur on Wednesday said that the country's economy would collapse if a strategy for restructuring the ailing banking sector was not taken straightaway.

He made the remark at a post-budget discussion organised jointly by the Metropolitan Chamber of Commerce and Industry, Dhaka and the Policy Research Institute at the MCCI auditorium in the capital Dhaka.

In the keynote, Mansur, also the executive director of the PRI, said that the financial system in Bangladesh was shrinking and the proposed budget was silent about structural reforms that the government needed to initiate in the financial sector with particular focus on the banking sector.

He said that officially the amount of non-performing loans in the banking sector increased further to Tk 1.82 trillion, but the real figure of NPL could be as high as Tk 4 trillion or 22 per cent of the total assets of the banking system.

'Some banks have NPL as high as 60 to 70 per cent of their total assets, making those banks de facto bankrupt. This cannot continue for long,' Ahsan said, adding that merger of weaker banks with stronger ones appeared to have failed due to lack of political support and deficiencies in designing the framework for consolidation.

He urged the government not to bail out bankrupt banks.

Mentioning that the Bangladesh Bank could help reduce high inflation rates by taking a few key actions, including adopting a strong monetary policy, avoiding injecting liquidity in the form of liquidity support to commercial banks and refraining from printing extra money to cover the government›s budget deficit, he said that inflation should begin to decrease within six to nine months if these steps were strictly followed.

'Taking cue from the international experience, we can expect that the inflation rate will come down to 6-5 per cent if similar developments happen in Bangladesh,' he said.

Zaidi Sattar, chairman of the PRI, discussed the 'Made in Bangladesh' initiative in the budget.

He mentioned that if policies supporting 'Made in Bangladesh' focused on selling products globally, the country›s economic growth could increase by 7-8 per cent, potentially reaching 10 per cent.

Kamran T Ahmed, president of the MCCI, said that to implement the budget properly, reformation of tax policies, automation of the tax system, reducing system losses in the overall tax collection, capacity enhancement of tax administration and adequate services delivery to the public were necessary.

'We also believe in having an interim evaluation of the budget after every three months,' he said

Mashiur Rahman, economic affairs adviser to the prime minister, said that focus should be given on increasing productivity, as well as on diversification of products and markets.

He also said, 'The government should take steps with significant investments to create more employment in the country.'

Habibullah N Karim, senior vice-president of the MCCI, among others, was present in the discussion.​

 

[Saif]

Six state banks struggle to recover written-off debts

Six state-owned commercial banks altogether recovered a nominal amount of their written-off loans against the government targets during the first quarter of the current calendar year, show Bangladesh Bank data, as a former central bank governor has accused bankers of not being serious enough abou

thefinancialexpress.com.bd

Six state banks struggle to recover written-off debts
REZAUL KARIM
Published :
Jun 15, 2024 00:06
Updated :
Jun 15, 2024 00:06

Six state-owned commercial banks altogether recovered a nominal amount of their written-off loans against the government targets during the first quarter of the current calendar year, show Bangladesh Bank data, as a former central bank governor has accused bankers of not being serious enough about loan recovery.

The six state-owned commercial banks -- all fully or majority-owned by the government -- are Sonali Bank, Bangladesh Development Bank Limited (BDBL), Basic Bank, Agrani Bank, Janata Bank and Rupali Bank.

Sonali Bank, BDBL, Basic Bank, Agrani Bank and Janata Bank only recovered 0.8 per cent, 0.15 per cent, 1.89 per cent, 3.50 per cent, and 4.57 per cent of their targets, respectively, in the January-March quarter. Rupali Bank, however, collected 53.86 per cent of its target during the first three months.

"Bankers at state-owned banks appear reluctant and lack seriousness in collecting written-off loans," said former Bangladesh Bank governor Salehuddin Ahmed. "They receive salaries and allowances regularly regardless of the deteriorating financial health of these banks."

Mr Ahmed added that borrowers from state-run banks are often influential and many fail to repay their loans. This leads to a hefty portion of disbursed loans becoming classified (non-performing) and eventually written off after a set period.

He suggested strengthening loan recovery efforts, including complying with central bank directives on the matter.

The total amount of written-off loans by state-owned commercial banks was Tk 181.17 billion in March 2024, down slightly from Tk 182.46 billion in March 2023.

The breakdown of written-off loans by bank in December 2023 was as follows: Sonali Bank over Tk 66.11 billion; Janata Bank Tk 32.42 billion; Agrani Bank Tk 39.41 billion; Rupali Bank Tk 5.67 billion; Bangladesh Development Bank Tk 13.27 billion; and Basic Bank Tk 24 billion.


Already burdened with heavy NPLs

The six banks are struggling under the weight of a large volume of non-performing loans (NPLs) -- an earlier stage of loan write-off.

Central bank data from March showed that the six state-owned commercial banks had Tk 858.70 billion in NPLs. These loans can eventually turn into bad debts, leading to a further rise in overall NPLs.

Sources in banking circles indicate that the NPL situation in the sector has been worsening for the past one and a half decades.

Banks are required to set aside provisions for a certain percentage of these loans on their balance sheets. The central bank scrutinises written-off loans quarterly.

If someone borrows money from a bank and can't pay it back, the bank considers the loan a bad debt because getting their money back seems unlikely. This is called a written-off loan. It is like removing the loan from the bank's "good stuff" list and marking it as a loss.

There are stages before a loan gets written-off. If the borrower misses payments for a while, the loan becomes non-performing. This is like a warning sign for the bank. They might try to work with the borrower to get them back on track, but if things do not improve, the loan could eventually get written-off.

The more non-performing loans a bank has, the more likely they are to write some of them off.

"While written-off loans can improve the short-term picture of a bank's balance sheet, they reduce capital base and profits in the long run. These loans also have a negative impact on a bank's business and investment activities," said a high-ranking official from the Bangladesh Bank.

To read the rest of the news, please click on the link above.​

 

[Saif]

Banks’ surging investments in bills, bonds shrink loanable funds

Banks in Bangladesh are increasing their investments in Treasury bills and bonds to net higher profits from the rising interest rate, a development that has squeezed the availability of loans for borrowers.

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Banks' surging investments in bills, bonds shrink loanable funds

Banks in Bangladesh are increasing their investments in Treasury bills and bonds to net higher profits from the rising interest rate, a development that has squeezed the availability of loans for borrowers.

This has forced a section of banks to continuously secure liquidity support from the Bangladesh Bank to meet their day-to-day fund requirements.

The government has used the bills and bonds to borrow Tk 78,117 crore from banks between July 1 and May 29 this fiscal year, up 337 percent from Tk 17,883 crore during the same period a year ago, central bank data BB showed.

The escalated borrowing through bills and bonds came after the central bank stopped lending to the government since such injection of funds into the economy fuels inflation, which has stayed above 9 percent for nearly two years and shows no signs of cooling.

The government plans to borrow Tk 137,500 crore from banks to finance the deficit in the proposed budget for 2024-25.

Banks are also more interested in investing in bills and bonds than lending to the private sector because of the rising interest rate. Government instruments are also secure whereas loans can turn sour.

"Therefore, banks are keener about Treasury bills and bonds and a major portion of their surplus liquidity has been invested in the tools," a central banker said.

The interest rate of Treasury bills now ranges from 11.60 percent to 12 percent whereas it was 6.75 percent to 7.75 percent in June last year. The interest rate of bonds recently jumped to a 15-year high of 12.75 percent.

Bills have short-term maturities while bonds have long maturities.

Owing to the higher investments by banks in government securities, excess liquidity, which includes cash and cash-equivalent assets, including Treasury bills and bonds, has risen in the banking system.

Excess liquidity stood at Tk 1,76,205 crore at the end of April, up 5 percent from Tk 1,66,825 crore a month earlier, central bank data showed.

A senior banker said although bills and bonds are considered liquid assets, they can't be turned into cash instantly because the secondary market is yet to become vibrant. Thus, the volume of surplus liquidity reported by the BB is not the actual liquid asset situation.

"This is evidenced by the liquidity stress confronting several banks."

Banks have collectively obtained around Tk 20,000 crore from the central bank through repo (repurchase agreement) and assured liquidity support tools in the past six months.

Mirza Elias Uddin Ahmed, managing director of Jamuna Bank, said although the surplus liquidity has increased, many banks are still taking liquidity support from the central bank.

"There is a liquidity mismatch in the banking sector. Some Islamic banks have been experiencing a liquidity crisis for more than one year. This has impacted the overall banking sector."

Another factor that has made banks cautious when it comes to lending is unbridled bad loans: default loans hit an all-time high of Tk 182,295 crore in March.

The demand for fresh loans has also declined as there has been a slowdown in the economy for the past two years owing to the lingering impacts of the coronavirus pandemic and the Russia-Ukraine war.

Recently, borrowers have adopted a go-slow approach in expanding their footprint amid the climbing interest rate.

Customers enjoyed a maximum 9 percent lending rate between April 2020 and June last year after the central bank introduced the ceiling to keep the cost of funds lower with a view to spurring industrialisation. However, amid lingering inflation, it was forced to scrap the cap in July last year, and on May 8, it even left the interest rate in the hands of the market.

To read the rest of the news, please click on the link above.​

 

[Saif]

Push-button mobile banking outshining traditional bank operations

Push-button mobile banking is flourishing fast as 20.80 per cent of Bangladesh's people now hold such device-based bank accounts with unbanked population increasingly coming under its network, latest official findings show. As of last April, the volume of transactions through all types of MF

thefinancialexpress.com.bd

Push-button mobile banking outshining traditional bank operations
Published :
Jun 20, 2024 00:06
Updated :
Jun 20, 2024 00:06

Push-button mobile banking is flourishing fast as 20.80 per cent of Bangladesh's people now hold such device-based bank accounts with unbanked population increasingly coming under its network, latest official findings show.

As of last April, the volume of transactions through all types of MFS ballooned to Tk 1.44 trillion.

Mobile-banking transactions can be done by using the mobile phone or from agent points. This is now much popular as Tk 25,000 can be transacted a day by an accountholder or Tk 150,000 a month.

In rural areas, the rate of mobile accountholders is 21.82 per cent while 18.75 per cent in urban areas.

Such picture comes clear from a latest survey conducted by Bangladesh Bureau of Statistics or BBS under the headline 'Socioeconomic and Demographic Survey 2023'. Population aged 10 years and above in the country with account in financial services came under such headcount.

They mainly open account with leading mobile-phone financial services --- bKash, Nagad, Rocket, Upay etc --with the rate being 28.33 per cent for male and 13.43 per cent for female.

The national statistical bureau says if a person has an account in a bank or non-bank financial institution, either individually or jointly, with any institution where financial transactions occur, that person is regarded as an accountholder in that financial institution.

Some 18.09 per cent have accounts with multiple financial institutions-with 26.02 per cent and 10.33 per cent for male and female respectively.

It is stated that 47.43 per cent of people in the country have financial accounts in banks, financial institutions, MFS, insurance, microcredit institutions, post offices, capital markets (BO or beneficiary owner account) and National Savings Directorate.

However some 52.57 per cent of the population does not have any account in financial institution.

In banks, some 5.85 per cent of the population has accounts while 0.09 per cent in non-bank financial institutions. Some 2.36 per cent of people have accounts with microcredit institutions or NGOs while 0.11 per cent in insurance companies.

And 0.10 per cent of the people have accounts with cooperative societies while 0.02 per cent in post office accounts.

Upcountry area like Rangpur division has the highest number of MFS accounts of 28.1 per cent followed by Barishal with 24.26 per cent.

Chattogram has the lowest number of MFS accounts at 18.11 per cent.

"Government payments and salary disbursement and cash-out transactions are major products," says the BBS in its survey report.

Currently, 10 banks and 3 subsidiary companies are providing MFS as an alternative payment channel in the country.​

 

[Saif]

Islami Bank dethrones Sonali Bank to become largest lender by deposits

Islami Bank Bangladesh PLC has become the largest lender in the country by total deposits for the first time, surpassing Sonali Bank PLC, despite loan scams in recent years.

www.thedailystar.net

Islami Bank dethrones Sonali Bank to become largest lender by deposits

Islami Bank Bangladesh PLC has become the largest lender in the country by total deposits for the first time, surpassing Sonali Bank PLC, despite loan scams in recent years.

The Shariah-compliant bank attracted deposits of Tk 153,456 crore in 2023, an increase of around 9 percent year-on-year.

Sonali Bank, the largest state-run lender, mobilised deposits worth Tk 150,606 crore, up 6 percent, according to the financial reports.

This makes Islami Bank the largest bank in Bangladesh in terms of deposits and loans (investments). Its lending has been much higher than the state-run lender for several years.

"Islami Bank receives higher deposits due mainly to religious factors," said Toufic Ahmad Choudhury, director-general of the Bangladesh Academy for Securities Markets.

"Apart from this, people have limited investment opportunities to keep their funds safe. People can buy land and flats, but they are also cheated. Therefore, banks have managed to retain the trust of depositors."

Established in 1983, Islami Bank was the first Shariah-based bank in Southeast Asia. It has been facing crisis since 2017 when S Alam Group took it over. Since then, its financial health has been deteriorating and many sponsors have already pulled out.

It has recently come under scrutiny due to widespread financial scams. For example, the bank allegedly disbursed Tk 7,246 crore in loans to nine companies in 2022 violating banking norms.

Choudhury, also a former director-general of the Bangladesh Institute of Bank Management, said many depositors don't bother about whether banks are safe options or not, and they have little knowledge about how financial institutions use the funds to generate incomes.

Private banks are also expanding their footprint by setting up agent banking outlets and by launching mobile financial services and internet banking. On the back of new technologies, they are growing fast while state-run banks are lagging.

In terms of network, Sonali Bank is still the largest lender in Bangladesh and much ahead of Islami Bank.

Islami Bank had 394 branches at the end of 2023 whereas it was 1,232 for Sonali Bank. State-run Agrani Bank came second with 978 branches and Janata was third-placed with 928 branches.

Choudhury said Sonali Bank has to give many government services, and it can't focus on collecting deposits like its private-sector competitors. "However, this bank's financial performance is improving."

Historically, people have had more trust in state-run banks, and they expanded their footprint across the country through branches, which netted them comparatively higher deposits.

Janata Bank collected the third-highest volume of deposits of Tk 110,341 crore last year. It was Tk 98,540 crore for Agrani Bank, Tk 66,731 crore for Rupali Bank, and Tk 60,574 crore for Pubali Bank, their financial reports showed.

Among the foreign banks, Standard Chartered Bangladesh raised the highest deposit at Tk 41,940 crore, a year-on-year increase of around 15 percent.

Pubali Bank posted a 19 percent growth to Tk 60,574 crore, becoming the top deposit collector among local conventional banks.

A top banker said depositors of Shariah-based banks usually don't keep funds with conventional banks, and the number of depositors in Islamic banks is rising steadily.

"Besides, financially strong and sound banks get more deposits."

Islami Bank lent Tk 141,035 crore in 2023. Sonali Bank came second in the category by extending loans amounting to Tk 102,399 crore.

Janata, Agrani, and Pubali Bank were among the top lenders.

Although Islami Bank topped the chart in attracting deposits and providing loans, it ranked lowly in the list of top profit-makers.

Standard Chartered Bangladesh posted the highest profit among all banks, netting a record Tk 2,335 crore in 2023 followed by HSBC's Tk 999 crore, BRAC Bank's Tk 827 crore, Dutch-Bangla Bank's Tk 801 crore, Sonali Bank's Tk 747 crore, and Pubali Bank's Tk 697 crore.

Another top banker said many people keep their funds with Shariah-based banks even if they offer a lower return or their financial strength is weak.

"They keep funds with a view to avoiding interests in conventional banks. Even, some of my close relatives don't keep funds in my banks," he said. "So, this is a pure case of belief."​

 

[Saif]

State banks nowhere near target to retrieve funds from top defaulters

Four state-run banks in Bangladesh are finding it difficult to recoup loans from their top 20 defaulters, a failure that has worsened their financial health and squeezed their capacity further to lend.

www.thedailystar.net

State banks nowhere near target to retrieve funds from top defaulters

Four state-run banks in Bangladesh are finding it difficult to recoup loans from their top 20 defaulters, a failure that has worsened their financial health and squeezed their capacity further to lend.

Sonali, Janata, Agrani and Rupali repeatedly hit the loan recovery target set by the central bank as per its memorandum of understanding (MoU) with the four largest banks of the country by branches.

It came although the government is under pressure to reduce the bad loans of state-run banks to 10 percent by 2026 as per prescriptions of the International Monetary Fund as part of its $4.7 billion loan programme.

Bad loans held by the six state-owned banks, which also include Bangladesh Development Bank Ltd and BASIC Bank, totalled Tk 65,781 crore in December, making up 20.99 percent of their outstanding credits.

Last year, Sonali Bank was asked to recoup Tk 300 crore from the top defaulters, data from the Bangladesh Bank showed. The lender managed to recover only 12 percent of the amount fixed. It was, however, an improvement from the 4 percent posted in 2022.

The bank's bad loans amounted to Tk 13,340 crore in December. Of the sum, more than Tk 4,000 crore was held by the top 20 defaulters.

T & Brothers, Hallmark Group, Modern Steel Mills, Fairtrade International, Ratanpur Steel Re-Rolling Mills, and Sonali Jute Mills are the largest delinquent borrowers.

Among them, Hallmark's loan hit hard the largest lender of Bangladesh by branches.

The bank's Ruposhi Bangla Hotel branch lent Hallmark Group and five other companies Tk 3,547 crore between 2010 and 2012 on forged documents. The businesses embezzled the entire amount in collusion with some bank officials.

Officials said that despite repeated attempts, the bank has not been able to make significant gains in reclaiming funds from the major defaulters.

Speaking to The Daily Star, Md Afzal Karim, managing director of Sonali Bank, said legal proceedings are underway to recover funds from Hallmark.

"We have come a long way under the process," he said, adding that several properties of Hallmark Group will come under the bank's control this year.

Janata Bank was given a target to raise Tk 870 crore from the top defaulters last year. It was able to recover only 5 percent of the target, down from 11 percent in 2022.

In December, AnonTex Group, S Alam Group, Crescent Group, Ranka Group, Ratanpur Group, Rimex Footwear, Chowdhury Group, Thermax Group, and Sikder Group were on the list of top 20 defaulters of Janata Bank.

However, Thermax and Sikder Group's bad loans were shown as unclassified in the classified loan statement since a writ has been filed with the High Court.

AnonTex has the highest amount of bad loans at Tk 7,708 crore with Janata Bank. The garment manufacturer is largely responsible for the ailing situation of the lender.

In 2022, Janata Bank decided to waive an interest of Tk 3,359 crore of AnonTex on the condition of a one-off loan repayment. The waiver was cancelled later.

Officials of Janata Bank said AnonTex is going to get an opportunity to repay the loans by selling collateralised properties.

At Tk 25,009 crore, Janata Bank had the highest volume of default loans among lenders in Bangladesh in December. It rose to Tk 30,495 crore in March this year, central bank data showed.

This forced the bank to stop giving out large loans and focus on getting back the unpaid loans from the top borrowers.

Recently, Janata's Managing Director Md Abdul Jabbar told The Daily Star that he was worried that the bank's bad loans would surge.

Agrani Bank got back only 3 percent of the Tk 685 crore recovery target set for 2023. Owing to the lacklustre collection from the defaulters, the bank's bad loans increased to Tk 21,476 crore from Tk 15,400 crore in 2022.

Zakia Group, JoJ Bhuiya Group, Tanaka Group, and Dhaka Hide & Skin Ltd are the top defaulters of the bank.

A senior official of the bank said Agrani is going to form a separate team to recover the bad loans from the top defaulters.

Of the four state-run banks, Rupali's performance was comparatively better than the other in terms of loan recovery.

The BB gave a goal of retrieving Tk 350 crore from the big defaulters last year. The lender attained 20 percent of the target.

As of June last year, Nurjahan Group, Benetex Industries, A Net Spin Ltd, Virgo Media (Channel 9), HR Spinning Mills, Ibrahim Consortium, SA Group and M Rahman Steel were among its top defaulters.

The bank's bad loans were at Tk 10,043 crore in 2023, up from Tk 9,225 crore a year ago, BB data showed.

Yesterday, Rupali Bank Managing Director Mohammad Jahangir said the bank has maintained regular contact with the top defaulters and taken steps to fast-track the legal procedures against the defaulters.

"We got good results last year thanks to our efforts. We will keep up the momentum."​

 

[Saif]

Two banks, one NBFI top sustainable lenders' list for fourth straight year

The latest rating showed that BRAC Bank and City Bank have been part of the list since the BB launched the rating in 2020.

www.thedailystar.net

Two banks, one NBFI top sustainable lenders' list for fourth straight year

File photo

Two banks and one non-bank financial institution (NBFI) have featured as the top lenders in sustainable financing for four years in a row, according to the Sustainability Rating 2023 report published by the Bangladesh Bank today.

The latest rating showed that BRAC Bank and City Bank have been part of the list since the BB launched the rating in 2020. Among NBFIs, IDLC Finance kept its place as one of the top sustainable financial companies.

The number of banks and financial institutions in the list increased to 13 in 2023 from 11 the previous year, as per the BB report.

The central bank introduced the rating four years ago to encourage lending to green, environment-friendly initiatives and sustainable agriculture.

The rating also listed Eastern Bank, Exim Bank, Jamuna Bank, Mutual Trust Bank, Trust Bank and Uttara Bank as the top sustainable banks, with IPDC Finance and United Finance featuring under the finance companies category.

The central bank considers financing green projects, sustainable agriculture, and cottage, micro, small, and medium enterprise finance as sustainable financing.

It also considers the performance of the lenders in giving access to sustainable finance for women, in-house green banking and environment and social risk management compliance.

Moreover, the BB evaluates the sustainability criteria of the banks by analysing factors like intervention by the directors of the financial institutions, capacity-building initiatives, and sustainable finance disclosures among others.​

 

[Saif]

New rules in the making to give more autonomy to Bangladesh Bank

The government is going to amend the Bangladesh Bank Order, 1972 to align it with global best practices and give the central bank more autonomy so that it can initiate steps to help the economy deal with pressure.

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New rules in the making to give more autonomy to Bangladesh Bank

The government is going to amend the Bangladesh Bank Order, 1972 to align it with global best practices and give the central bank more autonomy so that it can initiate steps to help the economy deal with pressure.

The central bank authorities have prepared the primary draft to modify the order and sent it to the government for approval.

It comes as the BB faces criticism for its failure to restore macroeconomic stability, bring down inflation, and bring back good governance in the ailing financial sector.

The International Monetary Fund (IMF) also raised questions about the current level of the autonomy enjoyed by the BB and recommended changes to the order.

"The order needs to be substantially amended so that price stability is the overriding objective of the new monetary policy regime, and governance arrangements are aligned accordingly," said the IMF in its technical assistance report regarding the central bank's activities.

There is no doubt that the central bank should enjoy full autonomy. At present, there is autonomy when it comes to rules and regulations. However, it is being impacted by the political economy
— Atiur Rahman Former governor of BB

Due to a lack of autonomy, the IMF said that the central bank is not able to take steps necessary for the economy, which has been witnessing one of its worst crises in recent times.

It said the Bangladesh Bank Order (BBO) saw improvements following changes in 2003. However, no changes have occurred to the BB's governance arrangements regarding its autonomy, transparency and accountability since an assessment undertaken in 2018.

"BB's de jure autonomy …. could constrain BB actions in times of pressure."

"The amendment is needed so that it can enhance the de jure autonomy of the BB, enhance its accountability arrangements, and limit its direct lending to priority sectors."

The BB governor's post can be a constitutional one or the tenure of the post can be six years. If the post of the PSC chairman and ACC chairman can be constitutional, why not the governor's post?

— Mohammed Farashuddin Former governor of BB
The IMF said amendments should be considered as soon as possible, taking advantage of the momentum provided by the BB's announcement of the transition to an interest rate-targeting monetary regime.

The government told the Washington-based lender during the second review of the $4.7 billion loan programme in April that it would seek IMF's assistance while reviewing the draft amendments to the BBO to ensure that the order is consistent with international best practices by December.

It intends to submit the amendments for the cabinet's approval within the programme period. The 42-month programme was approved in January last year.

According to the draft amendments, notwithstanding anything contained in any other law in force, the BB will have the sole authority to issue any directive, directly or indirectly, to any bank or financial institution.

Mohammed Farashuddin, a former central bank governor, said if the central bank has strong power, it is good for the country. On the other hand, if it lacks power, its activities are still not disrupted.

Atiur Rahman, also a former governor, said there is no doubt that the central bank should enjoy full autonomy.

"At present, there is autonomy when it comes to rules and regulations. However, it is being impacted by the political economy."

According to Rahman, if the central bank enjoys autonomy, it would be helpful to keep the economy stable. When the government realises the autonomy's importance, it will be in favour of independence.

Both Rahman and Farashuddin emphasised making the post of the governor constitutional.

The tenure of the governor can be six years, said Farashuddin, who held the post from November 1998 to November 2001.

"However, when I say this, I get the response that the governor enjoyed limited power when you were the governor, but you were not blocked by anyone."

He said a governor has power legally. "The power is a symbolic issue. It depends on who uses the power."

The ninth governor of the BB said he did not allow the government to take any loans from the central bank.

Farashuddin said he depreciated the currency several times before informing the then finance minister though the power was vested with the finance ministry.

The seventh governor of the BB said there were strict policies about the number of people who could sit on a board of banks and their tenure.

However, in recent years, the rules have been relaxed. For example, the forbearance for loan repayments and the relaxed loan rescheduling policy had been offered by the central bank. Still, it has failed to rein in the upward trend of non-performing loans (NPLs).

Another mistake on the part of the BB was to introduce a 9 percent lending rate ceiling in April 2020, which made loans cheaper. The interest rate was made market-based only on May 8 this year following advice from the IMF.

"Loan rescheduling is being allowed nine or ten times too. Interest waiver was given but it has to be stopped," Farashuddin added.

The IMF said some provisions of the order have given the government power that could constrain the BB's ability to "do whatever it takes" to achieve its objectives of price stability.

"The BBO section 82 also places the BB under the de facto control of the government of Bangladesh," it said.

A provision of the order called for establishing a council comprising the finance and commerce ministers, the governor, the secretary of the finance division, the secretary of the Internal Resources Division, and a member of the Planning Commission, for the co-ordination of fiscal, monetary and exchange rate policies.

The BB will ensure that the macro-economic framework as coordinated by the council is reflected in the policies of the BB, according to the provision.

"Therefore, the autonomy of the BB is not guaranteed," the IMF said.

The establishment of a dedicated body chaired by the ministry of finance to perform such coordination could also constrain BB actions in times of pressures, it added.​

 

[Bilal9]

During the watch of this Shameless ghatiya BB Governor, we had mal actors attempt to hack almost a Billion dollars from BB. Only by the grace of almighty Allah, the NYC MFR Hanover Bank noticed the hacks and shut down most of the illegal money transfer worth hundreds of millions of dollars. We still lost almost 60 Million hacked funds to Philippine banks, which they are yet to return.

This guy eluded complicity (and due criminal prosecution) by conveniently resigning from his post and go into retirement, as a reward for his complicity with illegal loans-without-collateral acts perpetrated by govt. functionaries. The FBI and NSA from US who investigated this incident, says that there was internal complicity from within BB, some from Indian IT contractors hired by the bank.

Just look at his shameless smile (and comb-over) - may Allah's lakh lana'at befall this incompetent individual appointed by even more incompetent fools under Hasina. He helped make the hapless poor people of Bangladesh even poorer. Wonder how he sleeps at night.

 

[Saif]

View attachment 6872

During the watch of this Shameless ghatiya BB Governor, we had mal actors attempt to hack almost a Billion dollars from BB. Only by the grace of almighty Allah, the NYC MFR Hanover Bank noticed the hacks and shut down most of the illegal money transfer worth hundreds of millions of dollars. We still lost almost 60 Million hacked funds to Philippine banks, which they are yet to return.

This guy eluded complicity (and due criminal prosecution) by conveniently resigning from his post and go into retirement, as a reward for his complicity with illegal loans-without-collateral acts perpetrated by govt. functionaries. The FBI and NSA from US who investigated this incident, says that there was internal complicity from within BB, some from Indian IT contractors hired by the bank.

Just look at his shameless smile (and comb-over) - may Allah's lakh lana'at befall this incompetent individual appointed by even more incompetent fools under Hasina. He helped made the hapless poor people of Bangladesh even poorer. Wonder how he sleeps at night.

He is an opportunity seeker. Most of the people who support Awami League fall in this category. It was on the media that Sheikh Hasina's son Joy was also involved in the Bangladesh Bank's financial scam.

 

[Bilal9]

He is an opportunity seeker. Most of the people who support Awami League fall in this category. It was on the media that Sheikh Hasina's son Joy was also involved in the Bangladesh Bank's financial scam.

Not unlikely. Stealing million of dollars from banks in various ways by powerful folks in Bangladesh has become too easy nowadays. Just think about how people close to the govt. can illegally transfer thousands of crores to Dubai or Singapore banks and get away with it.

 

[Saif]

Not unlikely. Stealing million of dollars from banks in various ways by powerful folks in Bangladesh has become too easy nowadays. Just think about how people close to the govt. can illegally transfer thousands of crores to Dubai or Singapore banks and get away with it.

শেখ মুজিব যথার্থই বলেছিলেন যে, 'সবাই পায় তেলের খনি আর আমি পাই চোরের খনি'।

 

[Saif]

Central bank’s autonomy crucial for the economy

Its lack of independence has had disastrous effects

www.thedailystar.net

Central bank's autonomy crucial for the economy
Its lack of independence has had disastrous effects

VISUAL: STAR

It's heartening to see the government acknowledge the importance of having an independent central bank. Reportedly, the authorities are set to amend the Bangladesh Bank Order, 1972 to supposedly align it with global best practices and give it more autonomy. The development comes at a time when the economy is going through one of the worst downturns in recent memory, with inflation continuing to break records. As experts have pointed out, failed government policies have been a major factor for the runaway inflation and other economic problems we are currently experiencing. And the role of government-controlled Bangladesh Bank in this debacle is particularly notable.

It is reasonable to assume that many of our problems could have been avoided or better addressed if we had an independent and courageous central bank. The government-imposed interest-rate caps on both the lending and deposit rates—at 9 and 6 percent—is a perfect example of this. Perhaps a more independent central bank would have realised—and indeed listened to experts—that this was a flawed policy that would only end up fuelling inflation. The decision to artificially inflate the value of the taka was another disaster that, too, could have been avoided.

Even before the recent economic crisis began, the unchecked "looting" of our banking sector—under political patronage—had damaged our economy beyond comprehension. Those cracks are widening today as the government, including the central bank, fails to curb default loans with the policies for defaulters continuing to be relaxed. The government's decision to provide continuous loan rescheduling facilities and interest rate waivers to loan defaulters has not been beneficial whatsoever. Therefore, we hope the Bangladesh Bank is given autonomy to pursue stricter policies with regard to wilful defaulters, without political interventions.

In its technical assistance report regarding the Bangladesh Bank, the IMF said that the bank "order needs to be substantially amended so that price stability is the overriding objective of the new monetary policy regime, and governance arrangements are aligned accordingly." We cannot agree more. What's concerning, however, is that a provision of the order called for establishing a council comprising finance and commerce ministers, the bank governor, and others. This will ultimately constrain the bank's actions in times of pressure.

Therefore, while the amendment initiative may sound good, its success in terms of making prudent economic decisions will be determined by the degree of autonomy ultimately granted to the central bank. Previously, despite talks of providing it with autonomy, we have seen the government do the exact opposite. Hence, we hope the amendment is not simply an eyewash amid pressure for reforms. It must be able to address longstanding concerns about the bank's function and mandate. An expert-driven Bangladesh Bank that protects the nation's best interests is the need of the hour.​

 

[Saif]

A former governor’s unpleasant truths about the banking sector

Economists are always noted for telling unpleasant truths because they go by numbers, research, theory, and judgement. Rarely do politicians—who can manufacture arguments to suit their purpose—endorse economists who are objective. Former Bangladesh Bank Governor Dr Mohammad Farashuddin has unvei

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A former governor's unpleasant truths about the banking sector

FILE VISUAL: REHNUMA PROSHOON

Economists are always noted for telling unpleasant truths because they go by numbers, research, theory, and judgement. Rarely do politicians—who can manufacture arguments to suit their purpose—endorse economists who are objective. Former Bangladesh Bank Governor Dr Mohammad Farashuddin has unveiled some truths about the country's banking sector where regulations have remarkably been relaxed in recent years. Seldom have we seen such blistering comments coming from a governor in Bangladesh's history. Farashuddin's statement, though commendable at a critical moment, creates enormous doubt over whether the government will really pay any attention to it.

The doubt is genuine because the looters are quite well-known to all of us, and they are flocking around the people in power. Not only have they indulged in misdeeds, but they are extravagantly empowered with high positions as well. To the bad luck of the nation, these people have been masquerading as the "true saviours" of the financial industry, if not that of the whole nation. These wolves in sheep's clothing, if not checked, will bring an economy of otherwise high potential down.

It would be a mistake for politicians to label Farashuddin as a supporter of the opposition. He was very well liked by Bangabandhu, who appointed him as his personal secretary. The Awami League government appointed him as governor of the central bank after coming to power in 1996. And most importantly, his performance at the helm of the central bank was academically sound and professionally pro-business.

Few retired bureaucrat-turned governors could do what he did. Dr Farashuddin remained committed to economic knowledge and the country's interest, not the interest of the wilful defaulters whose businesses always pretend to be in the red despite the economy's respectable growth. Sadly, growth is showing signs of a premature slowdown, justifying the clamours of economists who advocate bringing a semblance of law and ethics into business.

The great 18th-century economist Adam Smith once wrote, "Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice." Smith was so sure about his articulation that he asserted that all the rest would be brought about by the natural course of things once justice is safeguarded. The history of all developed countries has evidently proven that organised financial corruption and economic prosperity can never be siblings. They are mutually exclusive and many politicians in power seem to have brushed the trade-off aside for a game of personal wealth-making and very short-term interest.

Farashuddin's worry in this regard is quite explicit although he seems to be afraid of being mistreated if he speaks against the financial hooligans pampered by power. He literarily resorted to the poignant lines of Rabindranath Tagore—Morite chahina ami sundoro bhubone (I don't want to die in this beautiful world). So subtle was his sense of melancholy and humour.

The truth hidden under his humour points out that if high-scale bank looters are pardoned so easily, the banking sector's future must be cancerous, suggesting the emergence of further plunderers under the political coddling of the regime. His warning rightly echoes that of Dr Wahiduddin Mahmud, former economic adviser to the caretaker government, who allegorically labels the default culture as the rotten heart of the nation.

Some critics have recently labelled Dr Farashuddin's outburst at the seminar of the Economic Reporters' Forum (ERF) as his personal frustration for not being placed in a policymaking position by the regime. This is a defective interpretation of Farashuddin's standpoint. First, we need to judge whether he is statistically right about what he has said. Second, we need to check whether his recommendations don't serve him personally or his business. We get a "yes" in response to both these questions. His concern is that the family-based directorship proposal was passed at parliament without any resolution or debate. In fact, this law has turned many private banks into a mudir dokan—the single family-run petty shops sprawling in villages, fostering a perverse move of private banks from corporate structures to family dynasties.

The sneaky way of passing this family directorship law is the antithesis to the spirit of parliamentary democracy where we hope to see debates over economic policymaking. But there are many members of parliament who never utter a single word about anything during their tenure, while most of them are familiar with the art of accumulating personal wealth at magical speed. Thus, simply addressing the banking sector won't solve the current economic predicament. Parliament and the legal system must function better to make the economy as robust as it was before the pandemic.

Farashuddin is correct in pronouncing that some groups of people are taking bigger slices of the pizza—which we earned through independence. And hence, he is against the trend that brings more retired bureaucrats to politics. It will dampen the quality of bureaucratic services as we have already degraded the quality of our universities by infusing political enthusiasm. He is right in reiterating the unholy triangle of tax dodgers, bank defaulters, and money launderers. They are the same group of people who are dragging the economy to the cliff's edge, and waiting for the time to fly overseas with their trafficked fortunes.

This must be stopped for the sake of the nation where income inequality has been on an unbroken crescendo of unsustainability, defying any sensible records of peer nations. Putting a farmer in jail for defaulting on loans by Tk 1,000, while letting a bank looter sit beside government officials, signal a cancerous future for the financial industry, and Farashuddin's artistic portrayal of the injustice and asymmetry in this regard warrants serious attention from the government.

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

 

[Saif]

The concept of a public institution eludes our central bank

BB has recently restricted the journalists’ access for no reason in sight.

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The concept of a public institution eludes our central bank

Illustration: Biplob Chakroborty

In the mid-1980s, military dictator HM Ershad banned BBC's journalistic operations in Bangladesh. In March 2022, the Taliban banned BBC's local language services in Afghanistan. It can thus be theorised that authoritarian rulers simply hate any journalistic investigations because the press is detrimental to their longevity. But for journalists' normal, professional access into a financial institution in Bangladesh to be barred is an untimely absurdity. It raises a question as to whether something is really wrong within Bangladesh Bank (BB) right now, given that the regulator is floundering in the theatrics of mergers and trying to convert rotten apples to fresh oranges by covering up multiple loopholes.

BB has recently restricted the journalists' access for no reason in sight. Of course, BB's policy restlessness in recent months surrounding default loans, the dollar's exchange rates, reserves, remittance, inflation, and mergers have drawn in more criticism than praise from the media. Meanwhile, journalists have been reporting BB's half-baked ideas and erratic steps. They are only doing their job, as they have been for so long. It is their noble duty to report any public or private sector wrongdoings so as to alert the nation. So what's the problem?

The BB governor has attempted to explain the decision as trying to protect some "top secrets" of the central bank. If the so-called top secrets aren't religiously private, he is supposed to share these with the public via the media. People have every right to know such information since the central bank is the regulator of banks which live and thrive on people's money. And the BB is not like police headquarters; it doesn't handle murder cases which may warrant confidentiality. The culprits BB might be dealing with are wilful defaulters who are at the root of plundering the financial sector and thus placing the economy on the cliff's edge. But even these cases shouldn't be kept secret. The BB governor is a custodian of the state's interests, not those of loan defaulters. Being a hundred percent transparent is the first point of his oath.

The culture of central banks addressing journalists has been there since the early 1990s. Economist Alan Blinder, the then vice-chair of the Federal Reserve System, championed the culture of making central banks more accessible for and accountable to the public. His campaign, "Fed listens," has been a paragon of how a central bank must ensure free flow of information. The journalists help establish communication between policymakers and the public. The current Fed chair Jeromee Powell regularly meets with journalists after every policy decision; so does the governor of the Bank of England, Andrew Bailey. The current president of the European Central Bank (ECB), Christine Lagarde, previously the chair and managing director of the International Monetary Fund (IMF), invites the press for question-and-answer sessions quite regularly. The ECB also welcomes public tours to improve the common understanding of how central banks work and what purposes they serve.

The IMF outlines four principles of communication by central banks. It asserts that communication should be clear, candid, and transparent. Second, communication should reach all segments of the population. Third, communication should take place regularly. Fourth, all economic agents should have equal access to the same information. Ben Bernanke, who chaired the Fed and won the economics Nobel Prize, made it clear that central bank governors are public servants, and it is their responsibility to provide the public with as much explanation of their decisions as possible. Former Reserve Bank of India governor Raghuram Rajan faced journalists quite confidently because he understood economics well and didn't fear being dethroned by any tycoon groups. None of those mentioned above resorted to using their spokesmen to justify their stances because the respective governments appointed them knowing that these leaders know how the economy functions and thus can speak for themselves. At any central bank, every information is public information, and hiding anything is equivalent to doing a disservice to the government.

The economy is facing high inflation and reserve depletion. The banking sector in particular is in its most appalling state, requiring constant checkups like a patient in the ICU. In such a situation, journalists are akin to those devices surrounding the patient which work tirelessly to report BB's financial symptoms to the public.

BB needs extensive interactions with journalists more than ever before, because journalists can read the public pulse and communicate with stakeholders efficiently. No other service can replicate the functions which the media carries out for the public. Journalists mustn't be seen as counterparties, nor are they enemies of state interests. BB should rather engage with journalists as well-wishers and counsellors in regards to policy steps. Had BB adopted this practice in early 2022 when the prevailing crises began to surface, the governor would have been regarded as a good policymaker by now. But BB's attitude towards journalists has recently been more bureaucratic than accommodative, and that is doing more harm than good.

Restricting journalists in the secretariat should in no way be a good example that is blindly replicated in an institution like BB or the Bangladesh Securities and Exchange Commission. These bodies deal with citizens' savings and investments and citizens have the right to inquire about what the custodians of their assets are doing with them at any point in time. Thus, preventing journalists from discharging their duties is unconstitutional and demeans the noble objectives of the Bangladesh Bank Order, 1972 which was framed under Bangabandhu's guidance after independence. BB must revise its approach to journalism by following global best practices and thus improving its knowledge base.

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

 

[Saif]

Roadmap for banking reforms: Old wine in a new bottle?

In February 2019, the central bank lowered the timeframe to three years from five years. And what has that achieved?

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Roadmap for banking reforms: Old wine in a new bottle?

A few days before the one-sided election of January 7, Prime Minister Sheikh Hasina asked voters to forgive her (and her party, I assume) for any mistakes that were made since the Awami League came to power, with a promise to rectify them if her party returned to office. And nothing, perhaps, requires as urgent a rectification as the AL's policy in regards to the country's banking sector.

When the AL assumed office in 2009, the total defaulted loans amounted to Tk 22,481 crore, whereas at the end of September last year, non-performing loans (NPLs) stood at Tk 155,397 crore. During the last July-September period, NPLs in the banking sector decreased slightly. But that was only because Janata Bank rescheduled the defaulted loans of Beximco and S Alam, two of the country's biggest business groups which have received quite a few favours from the government. Such rescheduling tricks—which create the illusion of NPLs going down by hiding the figure from banks' balance sheets even though the liabilities still remain—have been at the core of the AL's banking sector policy. They have allowed the government—and vested interest groups—to continually hide the real amount of NPLs in the sector.

According to Moinul Islam, a former professor of economics at Chittagong University, "If the entire amount of the loans involved in the court cases and the written-off loans are taken into consideration, the total bad loans in the banking sector will be Tk 450,000 crore." Similarly, according to economist Ahsan H Mansur, the actual amount of bad loans accounts for around 24-25 percent of the total loans disbursed, whereas via accounting tricks, this is being shown to be below 10 percent.

This buildup of NPLs, according to the Asian Development Bank (ADB), poses a serious risk to the health of banks' balance sheets and financial soundness, reducing interest income, lowering profitability, and depleting their capital bases. They also require higher risk weights and minimum loss coverage in banks' capital requirements, putting a strain on liquidity and increasing funding costs. Hence, it should come as no surprise that the central bank has had to provide increasing amounts of liquidity to credit-hungry banks.

According to Bangladesh Bank statistics, the central bank provided liquidity support amounting to Tk 633.47 billion to banks in June 2023. In the following month, the handouts more than doubled, to Tk 1.28 trillion. And since then, it has been rising every month, ultimately reaching Tk 3.63 trillion in January 2024.

According to a central bank official, if Bangladesh Bank does not "continue cash feeding to the banks as per their requirements," they "will be in severe liquidity crisis." Among other consequences, the interest rate would go up to a level that may be difficult for the economy to absorb. Already, a tight liquidity situation facing both the government and banks has pushed up yields of treasury bills and bonds, as well as the lending rate, in the banking sector. And overall, there is a lack of trust in the financial sector which is adversely impacting the country's economy.

With the banking sector in so much trouble and the authorities walking a tightrope to balance the economy and finance, the Bangladesh Bank on February 4 unveiled its roadmap for reining in defaulted loans and bringing good governance to the sector. The most obvious concern about it, of course, is how genuinely it will be implemented. Given our track record, proper implementation remains highly unlikely. Moreover, some of the action plans and policy reforms already exist or were added in the Bank Company (Amendment) Act, 2023. Yet, none of those prevented things from getting worse.

For example, the roadmap says that the banking regulator will provide necessary instructions to prevent lenders from exceeding the single-borrower limit. However, the same provision existed in the Bank Company Act for more than a decade. And yet, exceeding the single-borrower limit has become the norm in our banking industry, with around 89 borrowers of four state-run banks exceeding it as of June last year, as per a central bank report. What is worse is that, in its attempt to reduce the higher volume of bad loans in the banking sector, the roadmap further relaxed the loan write-off policy by letting banks write off from their balance sheet defaulted loans that have been in the "bad and loss category" for two years, down from three years previously. Again, this will only "artificially" reduce bad loans as the liabilities will remain—meaning that this so-called reform is just old wine in a new bottle.

In February 2019, the central bank lowered the timeframe to three years from five years. And what has that achieved? Default loans since then have gone up from Tk 943 billion to as high as Tk 1,560 billion.

During the discussions prior to the unveiling of the roadmap, the Bangladesh Bank governor was apparently told to bring down default loans by taking any measures necessary, including ignoring political pressure. After its unveiling, former BB Governor Salehuddin Ahmed said the central bank must have enough strength to tackle political interference and pressure from influential groups to implement the roadmap.

However, what is interesting is that back in January, central bank Governor Abdur Rouf Talukder said that the BB's activities have never been influenced by outside forces—a blatant farce of a statement that no one in their right mind would believe.

So, if the governor does not have the courage to even admit the fact that the central bank has bowed to political pressure time and again, has broken its own rules, and made special concessions for vested interests, how can he be counted on to have the courage to stand up to them now? And unless Bangladesh Bank can carry out the necessary reforms by standing up to political pressure—which will most definitely be there—this new roadmap will be nothing but another failed reformation plan.

It is time for the prime minister to prove that her promises to the people were legitimate, and ensure that the regulators have her backing in carrying out the reforms—in spite of any and all political pressure.

Eresh Omar Jamal is a journalist at The Daily Star.​

 

[Saif]

How default culture plagues Bangladesh’s banking sector

A pre-Socratic Greek philosopher named Parmenides first articulated the famous idea: “Nothing comes from nothing.” Later, it appeared in Aristotle’s Physics. The Roman philosopher,

www.thedailystar.net

How default culture plagues Bangladesh's banking sector

The role of the central bank to regulate the banking industry has come under criticism since the 1980s. VISUAL: STAR

A pre-Socratic Greek philosopher named Parmenides first articulated the famous idea: "Nothing comes from nothing." Later, it appeared in Aristotle's Physics. The Roman philosopher, Lucretius, echoed the same, and so did William Shakespear in his famous play "King Lear." The quote was also used in a song from the famous classic movie, "The Sound of Music." The same is true for Bangladesh's banking sector and the emerging default culture which has reached an extreme level because of three things: i) inept institutional leadership; ii) various wrong policies in banking and loan management; and iii) the indulgence of financial plundering by politically mighty business tycoons.

Simply put, Bangladesh's default bonanza did not emerge from either economic debility or financial crises. Nor was it the consequence of political instability. Not a single global factor is attributable to this steadily rising trend in bad loans. It is simply the outcome of government indulgence to habitual defaulters who somehow managed to get crooked politicians to back them no matter which party comes to power. And this is threatening the country's prospect of becoming a developed nation by impinging on private investments, reducing employment opportunities, promoting money laundering, and eventually dampening GDP growth.

BANKS, FIS, AND FINANCIAL INCLUSION

The banking industry after independence included six nationalised commercial banks, three specialised banks, and nine foreign banks. They operated under the guidance of the Bangladesh Bank (BB), the central bank of the country. The BB Order 1972 was the de facto constitution which BB followed in regulating the industry. Due to policy changes in the 1980s and financial deregulation in the 1990s, the industry kept on expanding because private banks were allowed to enter the field under the Banking Company Act 1991.

Currently, the list of scheduled banks includes six state-owned commercial banks, three specialised banks to serve agriculture and industry, 33 conventional private commercial banks, 10 Islami Shariah-based commercial banks, and nine foreign banks. Non-Bank Financial Institutions (FIs) are those types of financial organisations which are regulated under the Financial Institution Act 1993 and controlled by BB. Now, 35 FIs are operating in the market. The architecture of banking and finance is huge, even though the measure of financial inclusion among adult Bangladeshis is not correspondingly satisfactory. According to the Global Findex Database 2021, financial account ownership in Bangladesh has grown substantially since the Awami League took office in 2009. Among Bangladeshi adults particularly, it grew by 22 percentage points, from 31 percent in 2011 to 53 percent in 2021.

However, as Brac observes, the momentum is decelerating—account ownership rose by just three percentage points from 50 percent to 53 percent between 2017 and 2021, suggesting that nearly half of the adult population remains outside of the financial sector's purview. And the current state of banking being mired in malfunctions does not bode well to accelerate the pace of financial inclusion anytime soon.

THE BELEAGUERED BANKING SECTOR

A BB fortnightly report in November 2023 revealed that the total bank deposits that include both demand and time deposits amounted to Tk 16.4 lakh crore in November 2023. Domestic credit amounted to Tk 19.6 lakh crore while credit to the private sector was Tk 15.5 lakh crore, and the rest is credit to the public sector. The banking sector is deeply troubled with a huge share of nonperforming loans (NPLs)—which did not occur as a result of economic distress, but because of judicial tardiness and political favouritism toward wilful defaulters.

The BB Financial Stability Report 2022, released in August 2023, revealed that Bangladesh's banking sector's risky loans amounted to Tk 377,922 crore by December 2022. This amount is the summation of total NPLs, outstanding rescheduled and restructured loans, as well as written-off loans. At the end of 2022, the banking sector's NPL stood at Tk 120,649 crore, outstanding rescheduled loans at Tk 212,780 crore and outstanding written-off loans at Tk 44,493 crore. The report also acknowledged that the overall asset quality has dropped and the NPL ratio has edged up. The percentage share of classified loans peaked at 10.11 percent of total outstanding loans in June 2023, while it was 7.66 percent in December 2020.

DEFAULT LOANS AND SOFT DEFINITIONS

The number game in the banking sector is complicated because of the mismatch between the timeliness of data and its mischievous quality. BB often finds some banks hiding their real data to show a lower amount of NPL and less amount of capital provisioning which enables them to show higher profits. The circus goes on. Roughly, while Tk 16 trillion remains as outstanding loans to the private sector in the economy, almost one-fourth of that amount comprises risky loans. Thus, Tk 4 trillion turns out to be the amount of risky loans, of which, around 40 percent—around Tk 1.6 trillion—appears to be declared as defaulted loans. A Prothom Alo report on October 3 of last year found the total amount of defaulted loans to be Tk 1.56 trillion, while the actual amount would have been more than double had the soft definition of default loans not been used.

The default figure remains highly undervalued on purpose. The report refers to the World Bank website that publishes data and analysis on default loans by collecting information from various central banks. Bangladesh occupied the second highest position in South Asia following Sri Lanka, whose default loans amounted to 13.33 percent of total loans. Bangladesh's default loan stood at 10.11 percent, while it was only 4.8 percent in 2013 according to the report. The corresponding figure for Pakistan was 7.4 percent and India only 3.9 percent.

While Sri Lanka should be seen as an exception because of its unprecedented financial disaster in 2023, Bangladesh turns out to be South Asia's champion in generating default loans, even though the country witnessed a respectable GDP growth rate above six percent since 2013, illustrating that the rise in defaulted loans in Bangladesh has not been economy-driven for sure. It is entirely due to an indulgent culture orchestrated by wilful financial delinquents who are fuelled by political patrons. The lobbyists and advocates of default loans eventually benefit from this institutional method of embezzling funds and rent seeking.

Hence, the first public impression about the banking sector is that it is obliged to embrace the looting of funds by big business tycoons who maintain solid lobbying power with powerful politicians. They can manage delaying numerous cases on default loans in courts, convince the finance ministry to pressurise the central bank to act in their favour and, finally, compel the central bank to reschedule or restructure their loans so they can either contest in the election or take further loans to cater for money laundering, or both. In case the banks sue the defaulters, the litigations take ages to be resolved and, meanwhile, the defaulters manage to get the authorities to come up with new ways to whitewash their misdeeds.

Bangladesh occupied the second highest position in South Asia following Sri Lanka, whose default loans amounted to 13.33 percent of total loans. VISUAL: STAR

GLOBAL OR DOMESTIC REASONS FOR DEFAULT LOANS?

The banking sector suffers from leadership issues. The role of the central bank to regulate the banking industry has come under criticism since the 1980s. But it has been much worse during the third term of the Awami League government (2019-2023) when both threats and opportunities reigned the market. The Covid-19 pandemic paralysed the world economy. Global GDP growth was on average three percent from 2013 to 2019. It plunged to negative 3.1 percent in 2020 during the pandemic.

However, the rebound of the world economy was spectacularly rewarding with global growth as high as six percent in 2021—an unprecedented rate in the postwar era. Growth reached 3.1 percent again in 2022, suggesting that it had returned to normal. The Russian attack on Ukraine in early 2022 caused a spike in inflation globally, but GDP growth did not fall from its average of three percent or so. Moreover, the labour market was tight and unemployment rates did not go up in most developed countries. The US had an unemployment rate of 3.6 percent in 2022—never seen in its past 50 years.

As WB data suggests, Bangladesh's growth always remained in the positive territory since the 1990s, and the country never saw a recession. Its growth even in the Covid year of 2020 turned out to be 3.45 percent—still in the positive territory—while it was 7.88 percent in 2019, 6.94 percent in 2021, and 7.1 percent in 2022. The figure is expected to be around 6.5 percent in 2023, as the government predicts. Thus, the average growth rate during the third term of Awami League becomes 6.4 percent, while it was 6.7 percent in the second term (2014-2018), suggesting that the economic performance during Awami League's third term does not justify a drastic rise in the volume as well as the ratio of NPLs.

Under the Awami League government, defaulted loans amounted to Tk 225 billion in 2009, Tk 502 billion in 2014, Tk 943 billion in 2019, Tk 887 billion in 2020, and surprisingly as high as Tk 1,560 billion in 2023—almost double the amount of what it was during the Covid year. This upward trend does not justify any rationale related to the real economic situation.

The percentage share of classified loans peaked at 10.11 percent of total outstanding loans in June 2023. VISUAL: SALMAN SAKIB SHAHRYAR
POOR LEADERSHIP AND POLITICAL INDULGENCE

The central bank and the ministry of finance (MOF) are jointly responsible for the default loan culture. While the central bank is primarily responsible for regulating the banking sector, the Bangladesh story is different. Here, the MOF keeps the central bank in its grip. Since the mid-2010s, central bank governors have usually been retired secretaries of the MOF. And the central bank leadership has virtually obliged with what the MOF has wished politically. This mechanism is pushing the state of the banking sector from bad to worse.

The amount of default loans that we see today is just the tip of the iceberg. The provision of rescheduling, which is dominantly the brainchild of a previous finance minister and has been unquestionably carried out by the obedient governors since 2016, perverted the definition of default loans. The restructuring provision allowed the big loan takers to extend their repayment dates for an unconscionable amount of time for loans of Tk 500 crore or above. The rescheduling provisions allowed defaulters to make their loans regular and normal by adjusting only 5-10 percent of their default loans. This a perversion that corrupted the normal practice of prudential banking governance. And that is how the default rate has been forcibly shown as low as 10 percent, which would be above 20 percent otherwise—had these two redefinitions not been adopted.

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