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Dhaka Tribune

Financing to a single client by banks on the rise

The tendency of financing by banks to a single client increased by 4.42% last year

Update : 23 Apr 2019, 09:17 PM

The tendency of financing by banks to a single client increased by 4.42% last year, allowing borrowers to divert excess funds to other unproductive sectors, a survey report of Bangladesh Institute of Bank Management (BIBM) said on Tuesday.

The report was presented at a workshop on “Credit operations of banks”, organized by BIBM in the capital. 

Bangladesh Bank Executive Director and BIBM Director General Md Abdur Rahim inaugurated the workshop, chaired by BIBM Chair Professor Barkat-e-khuda.  

BIBM Director and Professor Prashanta Kumar Banerjee and review team members presented the survey report at the workshop. 

According to the report, the most acute problem faced by bankers in credit operations is financing to a single client by multiple banks in a given time, which was 90.63% in 2018, and 86.31% in 2017.

“Financing to a single client by multiple banks allows borrowers to divert excess funds to other purposes, mainly in speculative businesses or in procuring properties. In this situation, borrowers fail to generate sufficient cash flow from the operation to service debt. It compels borrowers either to default or repay the loans of one bank with funds borrowed from another bank,” said the research report. 

Sonali Bank Managing Director and CEO Obayed Ullah Al Masud said over-financing by banks is the main reason behind the soaring default loans in the banking sector. Anonymous loans will become a big threat in the coming days, he added.

The numbers of money loan courts (artho rin adalat) should be increased in Dhaka and Chittagong areas, said Masud.

BIBM Supernumerary Professor Helal Ahmed Chowdhury said a task force should be formed to recover default loans. During the loan sanctioning process, if lenders become careful about borrowers, the risk of loans defaulting will be reduced, he added. 

BIBM Supernumerary Professor Md Yasin Ali said anonymous loans should be stopped. Moreover, if the banks’ directors take anonymous loans, the situation would not improve.

BIBM Chair Professor Barkat-e-khuda said people who live in villages are getting less loan from banks. The policymakers have to think about the issue to include inclusive banking. Everyone should come under the banking network, he said. 

The paper said in 2018, 20% of banks disbursed loans to new sectors, while 80% were confined to old businesses. As compared to 2017, there is a negative attitude by banks in disbursing loans to new areas, which decreased by 54.55% in 2018.

Bangladesh Bank's Chittagong office and regional-level top officials of both public and private banks also participated in the workshop through video conferencing. 

The research report has been prepared based on information received from 32 banks of the country. 

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