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Nine fourth generation banks continue to bleed

  • Published at 10:54 pm November 1st, 2018

As of June 2018, their sour loans stood at Tk2,417.87 crore, which was Tk1,148.77 crore in December last year

All nine fourth generation banks, given licences in 2013 on political consideration, saw their non-performing loans (NPLs) soar by Tk1,269 crore in a period of six months, according to the latest data of Bangladesh Bank.

As of June 2018, their sour loans stood at Tk2,417.87 crore, which was Tk1,148.77 crore in December last year.

Despite the dismal financial portfolio of nine banks, the central bank on Monday approved yet another bank, Community bank Bangladesh. It is seriously considering giving licences in favour of another three banks.

With the approval of Community Bank Bangladesh, the number of scheduled banks in the country stands at 59, which many stakeholders say is in excess of what the economy requires.

Experts attributed lax monitoring of the central bank coupled with aggressive lending by the banks and their tendency to violate regulations, for their dismal performance, weighing on the entire banking sector heavily.

In addition, sources at the banking sector said expenditure of the banks concerned is much higher than those of other operating commercial banks as fourth generation banks had to hire experienced bankers with higher pay packages.

Besides, the banks’ management also rented branch offices at higher than market prices to compete with other established banks, putting extra burden on their already bloated costs.

“The new banks made their foray at a wrong time, as making profit in the already overcrowded banking sector was absurd for them,” a senior banker told the Dhaka Tribune.

The new nine banks are: Meghna Bank, Midland Bank, Modhumoti Bank, NRB Bank, NRB Commercial Bank, NRB Global Bank, South Bangla Agriculture and Commerce Bank, Union Bank and The Farmers Bank. 

AB Mirza Azizul Islam, a former adviser to the caretaker government, told the Dhaka Tribune: “Banks licensed in 2013 are not doing well, although permission for new banks is being issued again. In 2013, when the licences against nine banks were given, many experts had warned that the financial health of the new banks would deteriorate in the coming years.

“The performances of the new nine banks did not surprise me, as this bad situation was predicted much earlier.”

Irregularities at The Farmers Bank and NRB Commercial Bank Limited have emerged as a systematic risk for the entire banking sector, another expert said.

According to Bangladesh Bank data, in the last six months (December 31, 2017 to June 30, 2018), the default loans of Meghna Bank increased by Tk69 crore to Tk162 crore, Midland Bank’s increased by Tk22 crore to Tk65 crore, Modhumoti Bank’s increased by Tk38.17 crore to Tk47 crore, NRB Bank’s increased by Tk56 crore to Tk111 crore, NRB Commercial Bank’s increased by Tk194.93 crore to Tk272.87 crore, NRB Global Bank’s increased by Tk50 crore to Tk111 crore, South Bangla Agriculture and Commerce Bank’s increased by Tk23.46 crore to Tk54 crore, Union Bank’s increased by Tk17 crore to Tk74 crore and the default loans of Farmers Bank increased by Tk798 crore to Tk1,521 crore.

“The banks were given licences in 2013 on political consideration. Most of the directors and chairmen of the nine banks are directly involved in politics. The banks have disbursed huge loans to politically influential individuals and much of these loans turned sour,” a senior central bank official, requesting anonymity, told the Dhaka Tribune. 

He added that: “The central bank has recently restructured the boards and the management of two new banks - Farmers and NRB Commercial because of their deteriorating financial health.”

Md Ehsan Khasru, managing director and CEO of The Farmers Bank, said: “We are now working on the reconstruction of financial and administrative systems. We have also taken various types of initiatives to realize default loans. A new start will be visible at Farmers from the next year.”

“The bank's current name will be changed, and its banking policies,” he said.