[🇧🇩] Banking System in Bangladesh

[Saif]

A welcome step that needs proper implementation

THE Bangladesh Bank tightening loan classification rules by shortening the period of overdue loans to become non-performing to six months from nine months is welcome. The rules aligned with international practices, issued in a circular on November 27, would give a clearer picture of...

www.newagebd.net

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

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

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

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

 

[Saif]

10 banks are ‘technically bankrupt’: white paper

However, the final draft of the white paper on the state of economy did not disclose the names of the lenders

www.thedailystar.net

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

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

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

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

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

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

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

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

 

[Saif]

Banks’ distress asset stands at Tk 6.75 lakh crore

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

www.newagebd.net

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

[Saif]

Bangladesh Bank raises credit card interest rate

Bangladesh Bank has turned up the dial on consumer credit costs, hiking the ceiling on credit card interest rates by a significant 5 percentage points. Previously maxed out at 20 percent, the new cap soars to a lofty 25 percent, nudging borrowers to tread cautiously in their spending sprees, repor

thefinancialexpress.com.bd

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

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

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

The change will take effect in the new year.

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

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

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

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

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

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

 

[Saif]

Resuscitating dying banks

The banking sector of the country has been made to bleed on an unprecedented scale during the past one and a half decades of the previous government overthrown on August 5 last. Unsurprisingly, Dr Ahsan H. Mansur, the current governor of the central bank, the Bangladesh Bank (BB), with his credenti

thefinancialexpress.com.bd

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

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

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

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

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

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

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

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