Hopeless Plight of Banking Sector

 

The latest financial indexes reflect a very poor scenario of the banks of Bangladesh. Most of the banks have been unable to recover defaulted loans. Moreover, illegal money transfer through the banking channel has been going on incessantly, financial sources have informed. The International Monetary Fund (IMF) and World Bank have expressed serious worries about the burgeoning sums of nonperforming loans in Bangladesh’s banking sector.

Economists have stated that the regulatory authorities are not taking strong actions against financial fraudsters for mysterious reasons who are responsible for ever rising defaulted loans and other financial irregularities. As a result graft and anomalies in banks have been increasing without respite.

Up to the end of September 2023, loans of 18 lakh 32 thousand 735 crore taka were distributed by the banking sector of Bangladesh. Out of this amount, 1 lakh 55 thousand 440 crore taka has become defaulted loans which is nearly 9% of the total disbursed credits. However, unofficial sources have reported that there are defaulted loans of around 2 trillion taka including written off debts. Such high figures of defaulted loans have put the country’s banking arena in a hopeless plight.

Abysmal woes in the banking sector threaten Bangladesh’s economy just like Covid 19 virus paralyzed everything for two years. At the same time a vicious and toxic syndicate is also at work like detrimental organisms to cause havoc to the country’s banks and financial institutions. Fake mortgages and false documents enable loan scammers to borrow mysterious loans from banks.

Reportedly Dhaka Bank, Exim Bank, IFIC Bank, NCC Bank, Pubali Bank, Social Islami Bank, Union Bank and Uttara Bank have faced huge losses because of not being able to recover defaulted loans. On top of that, the extent of defaulted loans is getting more and more augmented in these banks.

Besides private banks, state-owned banks are also in dire straits with defaulted loans. The sums of outstanding defaulted loans in Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank, Basic Bank and Bangladesh Development Bank Limited are 68 thousand 557 crore taka, 69 thousand 297 crore taka, 61 thousand 278 crore taka, 37 thousand 449 crore taka, 14 thousand 015 crore taka and 2 thousand 128 crore taka respectively.

Allegations show that loan fraudsters manage bank guarantees from some East European, Middle East and African countries and also from China. Financial perpetrators are also opening fraudulent letters of credit (LCs) and over-invoicing and under-invoicing are also going on to keep up money laundering reportedly.

The banking and financial sectors suffered most during the immediate past Governor of the central bank from 2016 to 2022. There is extreme lack of good governance in banks. Even some banks appoint directors in their boards without seeking approval from Bangladesh Securities and Exchange Commission (BSEC) and Bangladesh Bank.

Most of the banks in Bangladesh have been suffering from mammoth loads of defaulted loans. On top of that massive sums of defaulted loans are being rescheduled on a regular basis which further worsens the condition of the banking sector. Rescheduling bank loans happened only in state-owned banks during 2012 but later on it affected private banks too. Bangladesh Bank also agrees with the idea of rescheduling bank loans. Entrepreneurs were allowed three years time during Covid 19 pandemic to pay back their loans. Now the pandemic situation has much improved but still banks are not being able to recover defaulted loans from their clients. 

Bangladesh Bank’s information shows that bank loans of around 26 thousand crore taka were rescheduled during 2020 and 2021. During the same period loan interest of approximately 3.5 thousand crore taka was waived. Big sums of defaulted loans were also written off in previous years. Financial sources have informed that the magnitude of defaulted loans has crossed 2 trillion taka including written off debts. Banks usually write off loans when reserving 100% security deposit (provision) becomes impossible. However, official figures show that the amount of defaulted loans stood at 1 lakh 56 thousand 274 crore taka till September 2023.

State-owned banks wrote off 19 thousand 219 crore taka from January to September 2022. 41 private banks wrote off 24 thousand 953 crore 50 lakh taka during the same period. During the same time 9 foreign banks wrote off 1 thousand 71 crore taka and 3 specialized banks wrote off 365 crore taka. Financial experts have commented that these amounts have very little likelihood to be paid back.

Besides defaulted loans, money laundering also has been going up and up. Money laundering from Bangladesh to foreign countries has increased on an unnaturally egregious scale, financial sources have informed. Reportedly 4 lakh 36 thousand crore taka have been illegally transferred from Bangladesh to overseas locations during last several years. On an average every year nearly 73 thousand crore taka is being laundered from Bangladesh to foreign destinations.

Trade deficit in Bangladesh has crossed 36 billion dollars which is highest in the country’s history.

Money laundering is one of the major reasons behind the burgeoning trade deficit in the country. Economists have stated that most of the defaulted loans might have been laundered abroad by scammers.

Bangladesh Bank’s spokesman Mesbaul Haque said that Bangladesh Bank has initiated strong measures to build up accountability and integrity in banks and financial institutions. Mesbaul Haque expressed hope that the magnitude of defaulted loans will be soon curtailed.

The authorities concerned should work hard to constitute good governance and accountability in the banking sector. At the same time it is essential to keep banks away from political influence.

Bangladesh's banking sector has gone into the clutches of financial culprits. Some of them are so influential that the regulators cannot take any action against them. The regulatory authorities should not compromise with any bank or financial institution in case of graft and anomalies.
 

PR Biswas is a Senior Staff Correspondent of The Asian Age.