Some new PCBs flout credit rules

Dhaka,  Thu,  24 August 2017
Published : 11 Aug 2017, 00:58:47

Some new PCBs flout credit rules

BIBM study finds
FE Report

A good number of new private commercial banks (PCBs) were not complying properly with the lending rules and regulations in cases of sanctioning and disbursement of the loans.

The findings were reveled in a study by Bangladesh Institute of Bank Management (BIBM), which released a report on it Thursday.

The study also found that the new PCBs were not following the guidelines of Bangladesh Bank (BB) in borrower analysis, credit risk assessment, credit risk grading, credit approval and, credit sanctioning and disbursement while conducting a focus group discussion with the banks' officials.

Besides, a good number of irregularities and malpractices related to credit were found, ultimately increasing the rate of non-performing loans (NPLs) of the new banks.

In hiring entry-level positions like probationary officers (POs) or management trainee officers (MTOs), some of the new PCBs put emphasis on reference or political affiliation rather than the academic and professional qualifications of the candidates, according to the study.

The draft study report was released at a research workshop on 'An Evaluation of the Performance of New Commercial Banks' held at the BIBM auditorium in Dhaka, with BIBM director general Dr. Toufic Ahmed Chowdhury in the chair.

In 2012, the central bank had faced tremendous pressure from the government high-ups to quickly approve those banks even before it could properly scrutinise the applications, the study pointed out.

The BB had noted that the ratio of opening rural and urban branch by the new banks will be 1:1, which would help increase the bank branches in the rural areas and improve financial inclusion.

"But the home truth is that no bank can expand in rural areas before concentrating and making business in urban areas," said the study report.

Taking part in the discussion, senior bankers and experts recommended introducing immediately the merger and acquisition law along with comprehensive exit policy for the banks to efficiently manage possible systemic risks.

They also suggested the new banks to stop aggressive banking for ensuing discipline in the country's banking sector, saying that the banks will have to follow the risk management guidelines for improving their performance.

The overall performance of 2-3 new banks out of nine is not up to the mark, BB deputy governor SK Sur Chowdhury told the workshop.  He said the central bank has already issued prudential guidelines for the banks to improve their overall financial health.

"The BB is very much aware of the vulnerabilities of the new entrants and constantly monitoring developments in these institutions," he said, adding that the central bank appointed observers to two of the new banks for ensuring close monitoring and supervisions.

AK Gangopadhya Chair Professor of the BIBM Khondkar Ibrahim Khaled suggested the authorities concerned to give approval of the new banks on the basis of entrepreneurs' efficiencies, not on paid up capital.

He also emphasised on introduction of the mergers and acquisitions act immediately. Supernumerary Professor of the BIBM Helal Ahmed Chowdhury suggested the new banks not to buy loans from other banks without due diligence.

"The new banks should take preparations to implement the Basel-III framework properly," he noted.

Supernumerary Professor of the BIBM Muhammad Yasin Ali said the central bank should monitor the overall activities, including CSR (corporate social responsibility) of the new banks closely.

Nurul Amin, chief executive officer (CEO) and managing director (MD) of Meghna Bank Limited, said his bank was planning to go for IPO (initial public offering) next year.

He said the share of loans and advances of the new banks will reach to 5.0 per cent, instead of the existing level of 4.2 per cent, of the overall industry's loans and advance by the end of 2017.

"Loan defaulters should be politically boycotted," said the senior banker while explaining the changing mentality of the loan defeaters. CEO and MD of the NRB Bank Limited Mehmood Husain also spoke on the occasion.

The new banks were operating with 351 branches, including 169 rural ones, at the end of 2016.

The aggregate assets of these banks at the end of 2016 accounted for 3.6 per cent of the total banking industry assets than that of 2.9 per cent in 2015, according to the central bank statistics.

The share of loans and advances of the new banks reached at 4.2 per cent of the overall industry loans and advances in 2016 than that of 3.2 per cent in 2015.

The new banks are Meghna Bank Limited, Midland Bank Limited, Modumoti Bank Limited, NRB Bank Limited, NRB Commercial Bank Limited, NRB Global Bank Limited, South Bangla Agriculture and Commerce Bank Limited, The Farmers Bank Limited and Union Bank Limited.
Editor : A.H.M Moazzem Hossain
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