The new banks are doing aggressive banking even violating rules and ethics to get clients and business for survival in the competitive market as Bangladesh Bank detected the malpractices.
In this backdrop, the central bank had a meeting with chairmen and managing directors of the nine banks at its headquarters in Dhaka late last week, asking them to abide by the rules and regulations properly.
“We considered the loopholes for the first year of operation as a new comer. But from now on you will be punished if any violations are found,” an executive, who was present at the meeting, quoted Governor Dr Atiur Rahman as saying.
The governor asked the banks to strictly comply with the prudential guideline in case of loan disbursement, and advised them to avoid big loans.
He said some banks were found disbursed loans exceeding single borrower limits and extended loan limit violating rules. “The central bank will no more consider such violations in the future.”
The new banks are following mainly three ways to get business including lower interest rate, extending loan limit and allowing clients to pay loans of other banks, said a senior executive of Bangladesh Bank.
The central bank found such business tendency by analyzing their financial report of the year 2013 and minutes of board meetings, he said.
According to the Bangladesh Bank findings, Midland bank provided loan facilities to 11 clients who have existing loans in other banks and financial institutions in order to pay those loans and to make the clients its own.
The banks followed the curved way instead of making new clients, which could be termed as aggressive banking and the tendency is a threat for the banking sector, according to the report.
Bangladesh Bank is further examining the loans to see whether abnormal facilities have been provided.It also found some new banks provided loan exceeding the single borrower exposure limit of 15% and some banks’ tendency to provide big loans where they were supposed to disburse small loan as new banks, said a senior executive of the central bank.
The new banks are also collecting deposits at higher interest rate and disbursing loan at lower interest rate comparing the market rate.
The interest rates on deposit of new banks are above 11% as compared to banks’ 9% to 10%. Of the new banks, NRB Bank charged lowest lending rate at 12.81%.
The governor also asked the managing directors of the banks not to allow intervention by the bank owners in the management and recruitment.