[🇧🇩] Banking System in Bangladesh

[Saif]

No respite yet from banking sector woes

A crisis of confidence has gripped the country’s banking sector amid little action taken to resolve the deep-rooted challenges facing the sector and hold those accountable for years of malfeasance and mismanagement...

www.newagebd.net

No respite yet from banking sector woes
Mostafizur Rahman 27 October, 2024, 23:47

A crisis of confidence has gripped the country’s banking sector amid little action taken to resolve the deep-rooted challenges facing the sector and hold those accountable for years of malfeasance and mismanagement.

According to several officials of the Bangladesh Bank and other banks, aside from limited board restructurings in a few banks, no major reforms have been initiated since the interim government assumed office on August 8.

Despite initial hopes that the banking sector would stabilise after Sheikh Hasina resigned as prime minister and fled to India on August 5, the situation has barely improved.

Many banks are still unable to meet depositor demands, facing continued erosion of public trust causing panic fund withdrawals.

On September 8, new central bank governor Ahsan H Mansur acknowledged that around 10 banks faced risk of bankruptcy—a statement that further deepened the clients’ panic intensifying the rush of withdrawals.

The situation deteriorated further after the central bank restructured the boards of 11 banks and announced that it would not directly provide them with liquidity support.

These moves only deepened depositor mistrust, making it increasingly difficult for struggling banks to recover.

In response to the crisis, the central bank began providing limited support by guaranteeing interbank loans, disbursing Tk 5,000 crore to six distressed banks over the past one month.

The sector’s liquidity crisis, however, persists, with depositors still deeply concerned about the security of their funds.

Mutual Trust Bank managing director and chief executive officer Syed Mahbubur Rahman said that currently approximately 15 banks were battling against various crises that were unlikely to resolve soon.

He noted that aside from board restructurings at some banks, no significant reforms had yet been observed, adding, ‘We anticipate some visible reforms by December this year.’

Mahbubur said that although boards were restructured, much of the same senior management remained in place, casting doubt on their intension to lead meaningful changes.

He acknowledged the challenge of replacing senior management staff who had been in place for years.

On the crisis of confidence among depositors, Mahbubur highlighted that a quarter of banks were struggling with a severe liquidity crisis failing to repay depositors’ money.

Besides, he also mentioned the prevailing overall uncertainty and poor law and order situation as some key factors behind the ongoing crisis in the banking sector.

‘Government officials, including bankers, are currently in a “wait and see” mode given the broader political climate,’ he remarked.

As of the last working day in August, total bank deposits dropped to Tk 17.31 lakh crore from Tk 17.34 lakh crore in the last working day in July.

In end of August, currency outside banks surged for the 10th consecutive month, reaching Tk 2.92 lakh crore as depositors continued withdrawals.

Non-performing loans skyrocketed to Tk 2.11 lakh crore by June, up from Tk 88,734 crore in December 2021, underscoring the sector’s prolonged loan irregularities.

S Alam Group withdrew around Tk 2 lakh crore loans through companies including shell firms in collusion with some banks and central bank officials.

Similarly, Beximco Group borrowed Tk 25,000 crore from Janata Bank of which Tk 18,000 crore is now non-performing.

The central bank has largely turned a blind eye to such massive loan irregularities, often aiding these groups through relaxing regulations and maintaining silence.

Consequently, the sector faces a crippling liquidity shortage, with depositors losing trust not only in individual banks but also in regulatory bodies.

According to bankers, influential officials with strong ties to powerful political and business groups have retained their positions, blocking meaningful reform efforts.

Even within the central bank, key officials linked to groups like S Alam and Bashundhara remain in place, leading to the bank’s failure to address or expose corrupt practices, they observe.

So far, the Bangladesh Bank has refrained from taking punitive action against bank officials involved in these activities, perpetuating a lack of accountability and further deepening the sector’s ongoing crisis.

Additionally, the persistent dollar crisis, elevated exchange rates, acute liquidity shortages, and high-interest rates are deterring businesses from securing loans and opening letters of credit, negatively impacting the economic.

The government, facing this bleak scenario, has also struggled to secure sufficient loans from the banking sector.

Bangladesh Bank’s spokesperson and executive director, Husne Ara Shikha, stated that the central bank has restructured the boards of 11 banks to rebuild public trust and ensure good governance.

Regarding allegations that information on prior irregularities involving senior bank officials has been concealed, she clarified that the responsibility lay with the respective bank’s board to remove, transfer, or replace employees, including the managing director, for the sake of public interest.

Moreover, the central bank would make final decisions based on recommendations from the respective boards, she said.

The central bank was committed to taking action against any bank officer if complaints were found valid, said the Bangladesh Bank executive director.​

 

[Saif]

We need to protect depositors from bank boardroom misuse

Having a well-balanced and accountable board is paramount, especially as a bank holds and manages the funds of depositors.

www.thedailystar.net

We need to protect depositors from bank boardroom misuse

Visual: Salman Sakib Shahryar

In recent times, we have had a barrage of reports showing how, during the tenure of the Awami League regime, politically influential or affiliated directors in private banks abused their power to misappropriate general depositors' savings through illegal or unethical practices. These include sanctioning loans without due diligence, waiving or writing off loans and their interest, extending or rescheduling loans without reasonable grounds, making bank investments without proper feasibility studies, etc. Such poor governance resulted in an unprecedented misappropriation of depositors' money over the last decade or so.

While most malpractices in the banking sector stem from inadequate supervision and poor accountability practices by the central bank, the loopholes within the existing legal framework on banking governance also play a significant role. Corrupt individuals and their allies managed to legalise their wrongful actions by using some flawed provisions of the Bank Company Act, 1991 (amended up to 2023)—the primary legislation governing the banking sector. To identify the weaknesses in the legal provisions regarding accountability and transparency, it is crucial to understand the functions and powers of a bank's board of directors.

Legally, a board of directors is the highest decision-making body in a bank, responsible for formulating and implementing policies, risk management, internal controls, internal audits, and compliance. In short, the board oversees all business and administrative actions of a bank. So having a well-balanced and accountable board is paramount, especially as a bank holds and manages the funds of depositors. However, malpractice in the banking sector often begins when influential individuals take control of the board. The question is, does the current banking legislation prevent a bank from falling under the control of vested interests? The answer is somewhat affirmative.

Section 14Ka of the Act states that the shares of a bank cannot be accumulated in the hands of an individual, particular family, or company—and it bars them from acquiring more than 10 percent of shares in a banking company. Moreover, Section 15 restricts the number of directors from one family to three at a time, while Section 23 allows two additional directors from the same family's affiliated or controlled company or institution.

But since a bank, being a public limited company, must have at least three members on its board, including at least two independent directors, it is legally possible for five out of seven members on a board to be from a single family or its affiliated companies, allowing it to control the board. Such a concentration of control within a family raises ethical and legal concerns. For instance, appointing family members and associates to key positions in a bank could lead to conflicts of interest, where personal interests might overshadow depositor interests. Moreover, favouritism and incompetence may lead to poor compliance and thereby increase the risk of financial mismanagement and misappropriation.

Furthermore, according to an amendment to the Act passed on June 21, 2023, an individual can serve as a director for twelve consecutive years and may be reappointed after a three-year break. Such a lengthy tenure can allow directors to entrench themselves and misuse their position for personal gain rather than safeguarding depositor interests. All these vague and legally tenuous provisions of the Bank Company Act can open avenues for vested interests to amass control over banks.

Beyond the formation of the board, the most critical issue is ensuring transparency and accountability among directors. The Act mandates that directors, managing directors or chief executives, and senior management officials disclose the "name, address, and other details of their commercial, financial, agricultural, industrial, and other businesses," along with details of family business interests, to the board annually. However, Section 18 does not require this disclosure to be submitted to Bangladesh Bank, creating a transparency loophole. A board plagued by vested interests will naturally like to shield its members. Additionally, the Act requires directors and members of senior management to notify the board if they have a relationship with anyone bound or about to be bound in a significant contract with the bank. While this provision initially appears well-suited to promote transparency, the vague term "significant contract" leaves room for misinterpretation and manipulation.

Beyond the formations and functions of bank management, the 2023 amendment to the Act also raised concerns by granting substantial concessions to loan-defaulting companies. It stipulates that if one company within a group defaults, other companies within the same group or linked to the same individuals won't be classified as defaulters. This will also not affect their ability to secure new loans. Economists believe these changes risk increasing intentional loan defaults, further worsening bank governance issues.

What becomes clear from the above discussion is that existing legal provisions can, and do, allow for malpractice within banks. To protect general depositors' interests and restore good governance in the sector, we must reform the legal framework for board formation and its transparency.

Farhan Masuq is lecturer of law at Bangladesh University of Professionals (BUP).

Khushnuma Khan is a barrister-at-law.​

 

[Saif]

Tk 3,000cr export fund held up in four troubled banks

A large chunk of a Tk 10,000 crore central bank fund, meant for financing raw material imports for export orders, remains stuck with four crisis-hit banks, according to Bangladesh Bank officials.

www.thedailystar.net

Tk 3,000cr export fund held up in four troubled banks

A large chunk of a Tk 10,000 crore central bank fund, meant for financing raw material imports for export orders, remains stuck with four crisis-hit banks, according to Bangladesh Bank officials.

This has made it difficult for sound banks to get adequate liquidity from the Export Facilitation Pre-Finance Fund (EFPF) to lend to local exporters for raw material purchases from foreign markets.

The four banks are Islami Bank Bangladesh, Social Islami Bank, First Security Islami Bank and Union Bank -- the boards of which were previously dominated by the Chattogram-based industrial conglomerate S Alam Group.

Following the political changeover on August 5, the banks saw their boards reconstituted, ousting S Alam's men from the boardroom.

Still, the banks have struggled to repay the Bangladesh Bank Tk 3,035 crore, due mainly to their severe liquidity crisis. Therefore, the central bank has been extending the repayment deadline.

Of the total amount, Tk 2,000 crore is owed by Islami Bank Bangladesh, Tk 600 crore by Social Islami Bank, Tk 400 crore by First Security Islami Bank and Tk 35 crore by Union Bank.

In January last year, the Bangladesh Bank formed the Tk 10,000 crore EFPF to support industries facing raw material import challenges due to a foreign currency crisis.

Since the fund's formation, the central bank disbursed Tk 7,900 crore to banks, and has so far recovered Tk 3,200 crore in principal, according to central bank officials.

The officials said several other banks such as NCC Bank, Janata Bank, Global Islami Bank, Premier Bank, Prime Bank, Mercantile Bank, Bangladesh Krishi Bank, Bank Asia and Eastern Bank continue to utilise the pre-finance fund.

Speaking on condition of anonymity, a senior central bank official told The Daily Star that the banking regulator usually deducts the fund from lenders' current accounts upon the expiration of the repayment term.

As per the rules, every lender has to maintain a current account with the central bank.

But the current accounts of the four banks with the central bank remained negative for a long time due to the liquidity crisis. As a result, the central bank was unable to deduct the fund, the official added.

"New fund disbursement to the lenders has been suspended as a large portion is already stuck with them," said the official.

Except for Islami Bank Bangladesh, the commercial lenders are now struggling even to repay their depositors.

Central bank officials expressed optimism that Islami Bank Bangladesh would be able to repay the fund by December of this year, as its negative current account balance continues to decrease.

The Daily Star attempted to contact Islami Bank Bangladesh Chairman Obayed Ullah Al Masud and Managing Director Mohammed Monirul Moula by phone, but neither responded to the calls as of yesterday noon.

The crisis-hit banks are currently repaying depositors on a limited scale by securing liquidity support from the inter-bank money market and through central bank-issued guarantees.

Mohammad Abdul Mannan, the new chairman of First Security Islami Bank, recently told the newspaper that normal banking activities were resuming and they were working to repay depositors with the liquidity support.

A senior Social Islami Bank official said they are now repaying depositors for emergency purposes by utilising the liquidity support.

Union Bank's new Chairman Md Farid Uddin Ahmad could not be reached for comment.

In January of 2023, the central bank introduced the EFPF for exporters, coinciding with the phasing out of the Export Development Fund (EDF) as per prescriptions of the International Monetary Fund (IMF).

As of now, the EDF stands at around $2 billion, trimmed down from $7 billion in December 2022.

Members of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), Bangladesh Textile Mills Association, BKMEA and B and C type industries in export processing zones (EPZs) are eligible for financing from the EFPF.

An exporter can get a maximum loan of Tk 200 crore from the fund, which must be used for raw material imports. Banks are required to pay back the fund within six months, although they may extend or reduce the repayment period for their clients.

According to the scheme guidelines, clients with overdue export bills are not eligible for new funds from the scheme.

Besides, clients already receiving loans from other central bank funds for raw material imports are not allowed to get loans from the EFPF. Central bank officials said loan defaulters are also barred from accessing the EFPF.​

 

[Saif]

Don’t withdraw money from banks unless necessary: BB spokesperson

Deposited money is safe in banks, Husnay Ara Shikha says

www.thedailystar.net

Don’t withdraw money from banks unless necessary: BB spokesperson
Deposited money is safe in banks, Husnay Ara Shikha says

Bangladesh Bank Executive Director and Spokesperson Husnay Ara Shikha has requested depositors to avoid withdrawing money from banks unless absolutely necessary, assuring them that their funds are safe.

No bank in the world would be able to provide funds if all depositors tried to withdraw their money at once, she said in a press conference today on the current scenario in the banking sector.

Some banks are failing to repay depositors due to the withdrawal rush, Shikha said.

"Don't panic about the deposited money. Everyone will get their money back."

Shikha made the comments at a press conference held at the Bangladesh Bank headquarters in Dhaka today.

The banking regulator is extending liquidity support to some restructured banks, the central bank spokesperson said.

The board of directors of 11 banks – majority controlled by the controversial S Alam Group -- were reconstituted since the installation of the interim government in August this year.

Half of them are now struggling to repay depositors as the central bank has suspended providing liquidity support by printing money.

Three task forces were formed a month ago for banking sector reforms, Shikha said.

One of the task forces is working on banking reforms, another on increasing the efficiency of the banking sector workforce, and the third on recovering laundered money, she said.

Lawyers and consultants from different countries are being recruited in the task forces, she added.

Bangladesh saw a fall in inflation in this year's September, when it came down to 9.92 percent from August's 10.49 percent, according to data released by the Bangladesh Bureau of Statistics.

The BB executive director said inflation fell in the country thanks to the increase in the policy rate by the banking watchdog.

The policy rate, which now hovers around 10 percent, has been increased thrice since the beginning of the interim government's tenure, she said.

Inflation may come down to around 6 percent if the downward trend continues for the next six months, the BB spokesperson said.​

 

[Saif]

How to choose a good bank

A good bank ensures quality of loans (assets) by selecting the right borrowers, sanctioning loans to various sectors in different sizes, and keeping collateral.

www.thedailystar.net

How to choose a good bank

Depositors looking to put money in banks often face the risk of selecting a bad bank. This is because often they don’t have complete information about the financial and other conditions of the banks. VISUAL:SALMAN SAKIB SHAHRYAR

Depositors looking to put money in banks often face the risk of selecting a bad bank. This is because often they don't have complete information about the financial and other conditions of the banks. For a safe and good banking experience, it is essential to recognise strong banks, which can be done in the following ways.

A good bank ensures quality of loans (assets) by selecting the right borrowers, sanctioning loans to various sectors in different sizes, and keeping collateral. It avoids credit concentration and aggressive lending to high-risk borrowers, and grants loans to those who have credit discipline. It is motivated by value-driven strategies rather than immediate performance-driven ones. A bank's performance can be measured by its loan quality: if it has a small amount of distressed assets, its quality is good, but a bank with huge distressed assets—which include non-performing, rescheduled, restructured and other loans stuck in money loan courts—is surely a bad one. Such a bank fails to be profitable because it has to maintain a provision against non-performing assets from its profits. A bank that has a non-performing loan (NPL) rate of less than five percent is a good bank in Bangladesh's context. Depositors should look at this rate.

There is a single-borrower exposure limit, indicating the maximum amount of loan that banks can grant to one borrower. A bank can sanction 25 percent of its capital at most to a single borrower. It can also make a large loan that's at least 10 percent of its capital. It should not extend such loans frequently because doing so creates a concentration risk. It also fails to construct a diversified portfolio with many large loans. In contrast, when a bank extends many small and medium loans, its portfolio is diversified, making a trade-off between risks and returns. Depositors should avoid banks that have high proportions of large loans.

Capital is a parameter that's used to understand banks' loss absorption capacity. A bank must have sufficient capital for solvency purposes. When the capital is adequate, it can absorb significant unforeseen losses. Any loss that arises mainly from credit, interest rate, liquidity, foreign exchange and/or price risks is adjusted against the capital. Hence, a bank must keep a minimum amount of capital against its risk-weighted assets. If it possesses more risky assets, its capital requirement is high. A sound bank also maintains additional capital rather than the minimum. It keeps some capital buffer to face the loss emerging from unfavourable economic conditions and adverse business cycle. Depositors must also look at the overall capital position of a bank.

Liquidity is the ease with which an asset can be converted into cash without affecting its market price. Liquidity risk is a sudden surge in liability withdrawals that may leave banks in a position of having to liquidate assets at a very short notice and low prices. It is one of the most significant risks that banks need to manage to keep the trust of their depositors. When a bank faces a liquidity problem, it generally borrows from the money market. But when it tends to borrow at high interest rates, that signals that the bank is at a serious liquidity risk. It may also tend to collect deposits at abnormally high interest rates. As a last resort, it may borrow from Bangladesh Bank (BB). Sometimes, it may even need special liquidity support from BB to continue its operations.

Depositors should also know whether a bank can maintain regulatory reserves required by the central bank. Every bank has to maintain certain statutory reserves in cash and other assets. Failure to maintain the reserves leads to punitive action. Recently, several banks have failed to maintain these reserves, for which they were fined.

In a good bank, there are checks and balances between the board of directors and the top management where the former ensures that the bank's affairs are carried out competently, ethically, and in accordance with the law and policies; it also ensures that quality services are provided. The latter have to supervise all operations of a bank. There must be a fair participation of all directors in policymaking. The management must have freedom in its operations and the right to say "no" to the board of directors.

However, sometimes a bank is dominated by the chairpersons or directors from the same family. The chairperson makes major decisions on issues such as lending, recruitment, and large purchase. This type of governance puts the bank at a high risk. The banks that are currently facing problems with liquidity, NPLs, capital and provision were largely dominated by their respective chairpersons or a few influential directors. We have seen reports in the media about some banks afflicted with this problem. Depositors must be careful about putting their money in these banks.

The BB discloses information indicating the quality of banks. Recently, it categorised banks in red, yellow and green zones based on their performances. Banks in the green zone are safe, while those in the red zone are risky. The central bank also runs stress testing on banks to better understand their financial position and risks. The test shows the shock absorption capacity of banks under different adverse conditions. A good bank is highly shock-absorbent.

The BB analyses a bank's conditions by the CAMELS (capital adequacy, assets, management capability, earnings, liquidity and sensitivity) rating. Although this rating is not made public, every bank knows its own rating. In addition, banks are also rated by external credit assessment institutions every year. When a bank attains a good rating, it is advertised in newspapers. This rating is an important indicator of performance.

A good bank is also consistent in making profit; it declares a certain percentage of dividends every year for its shareholders and retains a portion of its profit to increase capital base and expand business. Its share price does not change abruptly. A good bank earns a decent return on assets and equity. It has respectable earnings per share, and so is its net asset value. The financial statements of banks contain these sets of information which depositors can look through.

Depositors should not necessarily make all these analyses by themselves. Most analyses are readily available in annual reports. They can depend on media reports too. If they are confused while selecting a bank, they can simply talk to bankers and experts. What's most important is that they need to be conscious about choosing a good bank. Doing so can reduce the risk of losing money.

Dr Md Main Uddin is professor and former chairman of the Department of Banking and Insurance at the University of Dhaka.​

 

[Saif]

Islamic banking to be off limits to regular banks

A bank will not be able to do Islamic banking business along with conventional banking at the same time, according to the draft ‘Islami Bank Company Act-2024’, as the central bank looks to level the playing field for Shariah-based banks.

www.thedailystar.net

Islamic banking to be off limits to regular banks
Draft law aims at levelling the playing field

A bank will not be able to do Islamic banking business along with conventional banking at the same time, according to the draft 'Islami Bank Company Act-2024', as the central bank looks to level the playing field for Shariah-based banks.

As of June, 30 conventional banks provide Islamic banking services through their 33 branches and 688 windows.

The banks will have to change their banking business model or form a subsidiary company to provide Islamic banking services when the law is effective.

"If the conventional banks are allowed to do Islamic banking, then there will not be a level playing field as the Islamic banks do not have the opportunity to do conventional banking," said Mohammad Shahriar Siddiqui, the head of the committee that prepared the draft.

Globally, this is the practice but, in some countries, there are provisions to open an Islamic banking window, he said.

The basic difference between conventional banking and Islamic banking is interest. Conventional banks are offering and taking interest by providing banking services but Shariah-based banks cannot. Shariah banks can share profits.

The need for the draft came as Shariah-based banking, which began in Bangladesh in 1983, is expanding rapidly without any law or effective guidelines.

The Islamic banking sector accounts for 23.65 percent of the total assets in the banking sector, 26.23 percent in the case of deposits and 28.24 percent in investment as of June.

At present, there are 10 full-fledged Shariah-based banks, and some of them have been involved in irregularities and scams in recent years.

The committee has prepared the draft in accordance with the international best practices by reviewing the existing BB provisions for Shariah-based banks and the existing laws of Islamic banks in different countries, said Siddiqui, also the assistant spokesperson of BB.

The banking regulator is now taking opinions on the draft law, which was approved by the BB governor on October 9.

The 30 conventional banks that are currently offering Islamic banking will have to inform the central bank in writing about their preferred type of banking within six months of the effective date of the act.

The banks will then get three years to become full-fledged Islamic lenders or wrap up their Shariah-based operations. In special cases, the tenure may be extended by a year.

However, the banks can continue the other type of banking business until the liabilities are not paid or the term for the deposits or loans has expired.

All Islamic banking companies licensed under the act will have to use the word Islamic in their name.

An Islamic banking company will not be able to purchase controlling shares in any existing company for the purpose of forming a subsidiary company or converting it into a subsidiary company for any purpose other than providing Islamic banking services.

The central bank will form a central Shariah advisory council to fulfil the adjective of the Act.

The Islamic bank companies will not be involved in any business where Shariah is not allowed, it said.

"You can say that we welcome the law, which is needed. But this is not the right time to impose a bar on conventional banks to do Islamic banking," said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.

The financial health of Shariah-based banks save for two or three has deteriorated.

"Amid this situation, the customers of conventional banks (Shariah branches or windows) will not find any suitable alternative if the bar was imposed in the law. The customers will be impacted."

Now, the Islamic banking branches and windows are doing better than the full-fledged Islamic banks, he said.

"If we can manage the balance sheet separately then there is no problem to do Islamic banking," he said, adding that foreign banks like Standard Chartered are doing both conventional banking and Islamic banking.

The guidelines and supervision are more important than the bar, said Rahman, also the former chairman of the Association of Bankers Bangladesh.

Conventional banks in Bangladesh opened Islamic banking branches and windows when they saw that there was a huge possibility for making high profits and attracting clients, said Md Main Uddin, professor and former chairman of the department of banking and insurance at Dhaka University.

If the law is passed, including those clauses, then the lenders will concentrate their business in specialised areas and their investment will also increase, which is primarily a positive thing, he said.

The barrier should not be imposed for a long time, he said, adding that the service quality and competition will increase when there will be no barrier.

There is a possibility of the service quality deteriorating if there is no competition.

Some banks can come under the merger and acquisition or liquidation process as there are so many banks in the country considering the size of the economy, he added.​

 

[Saif]

Islami Bank: Tk 120m gift allocation also vanishes into thin air

The bank spent around Tk 120 million on two fictitious purchases between August and October last year

en.prothomalo.com

Islami Bank: Tk 120m gift allocation also vanishes into thin air
Shanaullah Sakib
Dhaka
Updated: 09 Nov 2024, 13: 27

Islami Bank: Tk 120m gift allocation also vanishes into thin air

When different financial irregularities came to light in 2023, Islami Bank plunged into a liquidity crisis. The authorities took special initiative to boost deposit collection and set individual targets for officials.

Later, the board of directors decided to reward 13,500 successful officers with suit pieces. No officials received any suit piece till date, but the allocation – Tk 63 million – has already been spent.

In the same year, Islami Bank took an initiative to boost remittance to tackle the dollar crisis. It decided to purchase 100,000 umbrellas to give to top remitters. No umbrellas were ever provided to the bank, but Tk 55 million has been withdrawn on this purpose.

The bank spent around Tk 120 million on two fictitious purchases between August and October last year, according to internal documents. However, the real beneficiaries of the funds remain untraced.

The funds for the suit fabric were funneled through a businessman’s account in Chattogram and then transferred to three other accounts on the same day. The total amount was withdrawn immediately. Thus, the beneficiaries kept themselves out of sight.

Where did the money go?

Islami Bank, in a board meeting on 26 July 2023, decided to reward a total of 13,522 officials with suit fabric. Its client Belmonte Fabrics was awarded the order.

On 29 August, invoices and bills were submitted on behalf of Belmonte, though no fabric was delivered in reality. Despite being aware of the issue, the bank’s chief financial officer, Farid Uddin, requested authorisation to process the payment, while managing director Mohammed Monirul Moula approved it immediately.

According to records, Islami Bank transferred an amount of Tk 63.5 million to the client’s account on 30 August. On the same day, the fund was withdrawn from Belmonte's account with two cheques.

Belmonte owes nearly Tk 500 million to the Elephant Road branch of Islami Bank, and with a signed cheques submitted as security. When a loan defaults, the bank uses the cheque to file a case. A bank official said the amount was withdrawn using two security cheques of Belmonte.

In this regard, the managing director of Belmonte, Mohammad Badsha, said, “We received an order to supply suit fabric. As far as I recall, the order was never delivered. We have around Tk 500 million in loans at the bank, and security cheques are submitted against it. The funds might be withdrawn using those cheques.”

According to documents, a total of Tk 60 million – Tk 40 million and Tk 20 million in two phases – was deposited in cash from the Elephant Road branch to Masud Fish Processing and Ice Cream Limited of the Khatunganj branch in Chattogram. The entire amount was withdrawn from the branch through three cheques on the same day.

Masud Fish is an old client of Islami Bank and has a loan of Tk 500 million from the Khatunganj branch. It also submitted signed cheques for security.

Ashraf Hossain Masud, managing director of Masud Fish, claimed to have no connection with S Alam Group. “Though we are from Patiya, we have no relations with S Alam Group. Upon a request from the Khatunganj branch manager and second officer, I allowed them to use my account. Now, I have understood that it was a mistake to allow them to use my account and three cheques.”

He also said that they have been a client of the bank since 1988-89, but faced non-cooperation from the bank during the last few years. Hence, he permitted the bank to use his account, in the face of pressure.

During all these transactions, Islami Bank was under the control of Chattogram-based S Alam Group, led by Saiful Alam. His personal secretary and some other close associates were in leading positions in the bank, including the position of deputy managing director. Officials said the particular officers were engaged in clearing the fund.

Allocation for umbrellas

In its 329th board meeting on 20 September last year, the bank approved the purchase of 100,000 umbrellas and awarded the contract to Express Communications. It submitted invoices and bills on 10 October, without delivery of the umbrellas.

CFO Farid Uddin requested the funds, and MD Mohammed Monirul Moula approved it. Later, the bank issued a pay order of Tk 55 million to Express Communications, and it was cashed immediately.

Deepak Ghosh, owner of Express Communications, said, “I had a business partner named Abul Khair. He handled the delivery process of the gifts to the bank. However, he has no longer been with us for the last six to seven months.”

When asked about the issue, Abul Khair said, “I have no idea about the issue.”

The managing director of Islami Bank, MD Mohammed Monirul Moula, could not be reached for comment, while the central bank said a forensic audit could reveal the real beneficiaries of these irregularities in the future.​

 

[Saif]

Bangladesh Bank restructures board

Bangladesh Bank (BB) has restructured its Board of Directors by adding three new members. The development came through a board meeting held on Sunday at the BB headquarters in the city, said Husne Ara Shikha, BB Executive Director and spokesperson, after the meeting. The three new directors are F

thefinancialexpress.com.bd

Bangladesh Bank restructures board
BSS
Published :
Nov 10, 2024 20:51
Updated :
Nov 10, 2024 20:51

Bangladesh Bank (BB) has restructured its Board of Directors by adding three new members.

The development came through a board meeting held on Sunday at the BB headquarters in the city, said Husne Ara Shikha, BB Executive Director and spokesperson, after the meeting.

The three new directors are Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), Md Habibur Rahman, deputy governor of Bangladesh Bank, and Nazma Mubarek, the secretary of the Financial Institutions Division.

Shikha said today’s board meeting also set and passed the area of responsibility of the six-member taskforce which was formed back in September to conduct reform works in the banking sector.

The central bank spokesperson said the board today was also formally briefed about the writ petition regarding the Beximco Group.​

 

[Saif]

Banking sector needs drastic reforms to restore trust: BB governor

Bangladesh Bank (BB) Governor Dr Ahsan H Mansur has said that the banking sector requires drastic reforms, describing it as the backbone of the financial sector. Speaking as the chief guest at the 'Mastercard Excellence Awards 2024' held at a hotel on Saturday evening, the governor acknowledg

thefinancialexpress.com.bd

Banking sector needs drastic reforms to restore trust: BB governor
UNB
Published :
Nov 16, 2024 21:54
Updated :
Nov 16, 2024 21:54

Bangladesh Bank (BB) Governor Dr Ahsan H Mansur has said that the banking sector requires drastic reforms, describing it as the backbone of the financial sector.

Speaking as the chief guest at the 'Mastercard Excellence Awards 2024' held at a hotel on Saturday evening, the governor acknowledged past irregularities in the sector and the central bank's shortcomings in regulatory affairs.

He, however, assured that drastic reforms would be implemented to ensure fairness and restore trust. "Irregularities happened in banks for a long period with state sponsors. It will take time to restore trust in our banking system domestically and globally," Dr Mansur said.

He said that banking sector reforms alone would not be enough and highlighted the need for other state organs and political commitment to achieve a robust financial system.

Dr Mansur dismissed fears of Bangladesh facing a crisis like Sri Lanka's, affirming that there are no severe risks in the banking sector at present. "The government is confident in restoring good governance in the financial sector," he added.

Trishita Maula, Acting Deputy Chief of Mission at the US Embassy in Dhaka, attended the event. CEOs of several leading banks, fintech companies, and merchants were also present.

The Mastercard Excellence Awards 2024 recognised 26 organisations for their contributions to building a sustainable digital economy and advancing financial inclusion.

Mastercard, which began its operations in Bangladesh in 1991 and became the first global payments operator to establish a local presence in 2013, continues to play a pivotal role in strengthening the country's digital ecosystem.

Over the years, the company has collaborated with government and private stakeholders to transform the payments industry with its world-class products and solutions.

Syed Mohammad Kamal, Country Manager for Bangladesh at Mastercard, said, "Mastercard remains committed to digital innovation and fostering inclusive growth in the country. The company is pleased to collaborate with leading banks, fintechs, and merchants as partners."​

 

[Saif]

Default loans soar to Tk 2.85 trillion, actual scenario emerges

Nearly 17 per cent of the loans disbursed by the banks in the country have become defaulted, which was 12.56 per cent at the end of June

en.prothomalo.com

Default loans soar to Tk 2.85 trillion, actual scenario emerges
Staff Correspondent
Dhaka
Updated: 17 Nov 2024, 20: 00

The volume of defaulted loans increased to Tk 284,977 crore (about Tk 2.85 trillion) at the end of September, with a humongous rise of bad loans by Tk 735.86 billion in the banking sector in three months.

This is the first time the information of defaulted loans became available since the fall of the government on 5 August, revealing the actual amount of the bad loans.

The money that was taken out from banks during the regime of Sheikh Hasina-led government of Bangladesh Awami League (AL) until it was ousted in the face of a student-people uprising, is now being identified as defaulted loans.

As a result, nearly 17 per cent of the loans disbursed by the banks in the country have become defaulted, which was 12.56 per cent at the end of June.

According to the Bangladesh Bank (BB), the amount of defaulted loans at that time was just over Tk 2.11 trillion.

When the Bangladesh Awami League formed the government in 2009, the amount of defaulted loans in the country was Tk 224.81 billion. Since then the bad loan has seen a steep rise in the last 15 and a half years.

The economists, for a long time, have been alleging that under the state patronage, a huge amount of the money has been looted from the banks in the name of defaulted loans and laundered abroad.

Even different types of initiatives were taken so that the banks could disburse a huge amount of money as loans to the influential people and show the amount less in the banks’ ledger books.

The central bank, the Bangladesh Bank, however, has shifted its stance from that policy.

According to the regulatory body, the role of private banks was more than the state-owned banks in the rise of defaulted loans from June to September.

The bad loans increased by Tk 236.28 billion at the state-owned banks against the amount of Tk 498.85 billion at private banks in the three months.

The six Islamic banks that were under the control of the controversial S Alam Group have started revealing the actual state of their financial conditions following the fall of the government.

Besides, former prime minister Sheikh Hasina’s adviser Salman F Rahman’s Beximco Group, Bashundhara Group and S Alam and a few other large business conglomerates have become defaulted, leading to exacerbating the situation.

The people related to the banking sector, however, think the actual amount of defaulted loans is far more than the amount published.

They pointed out that the central bank could not count the loans written off and on the list of stay orders due to the court order.

Top officials of the central bank think the actual scenario would be revealed more in the coming days due to the steps the interim government has taken for reforming the banking sector.​

 

[Saif]

No bank will be closed

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

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No bank will be closed
Salehuddin says

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ahmed also urged businessmen to move ahead without fear.

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

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

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

 

[Saif]

Helping banking sector stand on its feet

Disbursement of loans bending rules to businesses enjoying political favour during the previous regime had been behind stiff rise in non-performing loans (NPLs) or bad debts in the banking sector. Though substantial amounts of funds were thus siphoned from the banks using fictitious names of borrow

thefinancialexpress.com.bd

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

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

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

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

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

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

 

[Saif]

BB asks banks to rebuild image

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

www.thedailystar.net

BB asks banks to rebuild image

Photo: Star/File

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

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

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

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

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

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

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

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

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

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

 

[Saif]

Why is the banking sector crisis so deep-rooted?

The regime-sponsored immorality to protect or pamper the financial gangsters not only eroded the future of the banking sector, but also made the wound too difficult to recover from.

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

FILE ILLUSTRATION: BIPLOB CHAKROBORTY

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

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

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

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

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

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

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

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

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

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

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

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

 

[Saif]

BB tightens loan classification rules to meet IMF conditions

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

www.thedailystar.net

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

[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.​