Bangladesh Bank Governor Atiur Rahman yesterday came down hard on bank directors after they expressed anxiety over the central bank’s new move to restructure big loans.
He clarified that the central bank was restructuring the loans not rescheduling them, at a seminar titled “Revisiting Corporate Governance Regulations for Banks in Bangladesh” organised by the International Finance Corporation (IFC) at the Westin Hotel in the capital.
“It is meant to salvage the banks, not to salvage entrepreneurs as you seem to suggest,” the governor said, visibly annoyed.
“It is your business to give the best loans to the best entrepreneurs. You failed because you lent to the wrong people. You did not do due diligence, and now, finally, the regulator is having to come in and save you,” he said.
The central bank has taken steps to restructure large loans of big corporate houses, which in Bangladesh Bank’s view have faced international price or domestic shocks.
“One should not be confused,” Atiur said when a director termed the latest move a “rescheduling” of the loans.
The governor said the central bank had the choice of either closing its eyes and letting the banks make provisions against bad loans or stepping in to salvage them.
“The big houses employ thousands of people who would be on the street if the businesses closed down and that is a consideration taken by the central bank in deciding to intervene,” he said.
Citing an example, he said on one occasion the large loans of a big group were restructured for 20 years at zero percent interest and many banks still bear the burden of that decision but the group has become a strong business entity.
He said the Bangladesh Bank restructuring circular issued last week was very stringent and that no loans suspected of being fraudulent or irregular would get access to the restructuring facility. He admitted that the broader governance environment suffered many shortcomings.
Indulgent laxities, delays in taking loan scammers and frauds to court and the abuse of process loopholes in delaying legal redress were the main impediments in establishing excellence in the governance of the financial sector, he said.
The governor said there should be a separate bench for dealing with financial cases.
Citing his role in the commercial sector, he said: “You have to do your business and I am just your referee. If there is a foul, I have to blow my whistle.”
Deputy Governor Shitangshu Kumar Sur Chowdhury made a detailed presentation on corporate governance regulation for banks in Bangladesh.
Vice Chairman of United Commercial Bank Sarif Zahir, a discussant, said there is a set guideline to appoint directors to boards, but in practice boards are comprised of family members who do not give the banks sufficient time.
The banks must take the issue seriously and appoint qualified people who can give enough time for the betterment of banks, said Zahir, who has two decades’ experience as a bank director.
He said there was a common practice among directors to take loans from each other’s banks and the rescheduling of large loans may have a negative impact on the banking sector.
IFC Country Manager for Bangladesh, Nepal and Bhutan Kyle F Kelhofer and IFC Global Manager Darrrin Hartzler also spoke at the seminar.
A large number of bank directors were present at the programme.