[🇧🇩] Banking System in Bangladesh

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

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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.​