The other reasons are adverse selection in lending, bankers’ corruption, weak corporate governance and weak monitoring capacity of the central bank
The Bangladesh Institutes of Development Studies (BIDS) has found five reasons, including political interference, behind the rise of non-performing loan (NPL) in the country’s banking sector.
The other reasons are adverse selection in lending, bankers’ corruption, weak corporate governance and weak monitoring capacity of the central bank.
Senior Research Fellow Monzur Hossain at BIDS mentioned the reasons in a session of the two-day discussion titled ‘BIDS Critical Conversation 2019’ that began in a Dhaka city hotel on Sunday.
Monzur said that the non-performing loans was rising for bank managements’ failure to select the right person for lending.
“Besides, there are lacks of good governance in the banks,” he added, saying, “Some corrupt bankers help sanctioning bad loans, which increases NPLs.”
“Political inference in sanctioning loans also pushes up NPLs,” he said.
Besides, regulatory authorities Bangladesh Bank failed to monitor the banks well, he claimed.
The NPL was giving an impression of crisis in the banks, lowering the customers confidence in the sector, Monzur mentioned.
Currently, a 10.33% of the total Tk93,370 crore outstanding loan is considered as non-performing loan, as per state-controlled think tank BIDS.
Although the government banks had the highest share of NPLs, it also increased in private commercial banks significantly, it observed.
Association of Bankers, Bangladesh (ABB) Chairman Syed Mahbubur Rahman, World Bank Lead Economist Zahid Hussain, South Asian Network on Economic Modeling (SANEM) Executive Director Selim Raihan spoke in the session chaired by Policy Research Institute (PRI) Chairman Zaidi Sattar.
ABB Chairman Syed Mahbubur Rahman said the country’s banking sector was in an unhealthy competition in sanctioning loans.
A refused customer of a particular bank would take higher amount of loan from the other ones, as there were a large number of banks operating in the country, he added.
Bankers were disbursing loan to fulfill their target set by the banks for more profit, he claimed.
“We have no shortage of bankers but the number of quality bankers, especially in higher post, is very low, which is another reason for NPL rise,” said Mahbubur Rahman.
“Besides, nowadays bank boards or higher officials are seen to intervene even in silly loan sanctions,” claimed the ABB chairman.
Mahbubur, however, said recovering the loan was so tough, sometime impossible, even through Artha Rin Adalat, a special court for financial loan.
PRI Chairman Zaidi Sattar said banks were more interested to disburse big loans rather than small ones, which was another reason behind the NPL rise.
“The consumers feel at risk taking small loan, while bank itself feel at risk giving big loans,” he said.
BIDS suggested improvement of corporate governance to reduce NPL and said the government should reform rules and regulation, reducing family-based directorship in the bank board and their tenures.
Besides, appointing professional persons as directors was a must, it said.
BIDS also suggested that the number of banks should not rise any further as already a large of banks, more than what was needed, were operating int he country.
The number of the country’s banks is 59 now.