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Dhaka Tribune

Govt goes for banks' financial health check-up

Board chairmen, MDs and CEOs asked to join a review meeting at NEC on Sunday

Update : 30 Nov 2019, 10:30 PM

The government is going to assess what the banks did in the past three months to overcome the problems facing the sector, including growing non-performing loans (NPLs), consequences of high lending rates, and provision shortfalls. 

The current state of implementing single digit rates and declining credit flow to private sector are also going to be examined, according to the sector insiders. 

In this regard, the Financial Institution Division (FID) of the Ministry of Finance is going to hold an "overall views exchange meeting" at National Economic Council (NEC) in the capital on Sunda. 

In a letter issued to banks on Thursday, the FID asked chairmen of boards of directors and managing directors (MDs) and chief executive officers (CEOs) of all public and private banks to attend meeting to be chaired by Finance Minister AHM Mustafa Kamal.

Although the FID letter mentioned no specific agenda of the meeting, it said the finance minister would exchange views with the bank bosses.

A number of leading bankers, however, have told Dhaka Tribune that they will present updated respective financial reports to the minister, who would perhaps inquire them about the status of implementation of single digit interest rate.

"As there is no specific agenda, I will take updated financial report to meet finance minister's queries. I guess the finance minister may inquire about implementing single digit lending rate," said the chairman of a state-owned bank, seeking anonymity.    

"We have nothing (proposal) to place to the finance minister at the meeting. I hope he will direct us what to do," said managing director and CEO of a private bank, also on condition of anonymity. 

The CEO said he learnt from heads of managements of other banks that the finance minister might instruct banks about the interest rate cut, reducing the NPLs and improving key indicators of the respective banks. 

For the last one year, the government has been pursuing banks for implementing single digit lending rates to ensure adequate finance to private sector and improve the recovery of NPLs. The incumbent finance minister also vowed to implement the higher single digit lending rate at 9% at all scheduled banks. 

In August last, the finance minister sat in separate meetings with public and private banks' chairmen and MDs and CEOs in this regard. 

He also told the banks that he would sit every quarterly with all the scheduled banks to follow up eventual developments and device policy frameworks to accelerate the performance of banks to enhance their contribution to the economy.

On Thursday last, the finance minister told the media that he would keep pursuing for lowering the lending rates in order to keep the local manufacturing sector competitive in global market, as the country's manufacturing sector contributed largely to export income.

The meeting is going to take place at a time when NPLs at banks escalated further from Tk112,425 crore in June to Tk116,288 crore in September this year, which was 11.99% of total outstanding loans, according to Bangladesh Bank data.

The huge NPL has squeezed the loanable funds of the banks, and as a result, the growth of credit to private sector declined to 0.60% in July-September 2019-20 financial year (FY) compared to 1.24% in the corresponding period last FY. 

The BB data show that the private sector gets a total of Tk6441.1 crore in loans from banks in the first quarter of current FY.

Higher NPL at banks' has drawn widespread criticism from economists and financial analysts at the end of last fiscal with an updated report of the central bank that disclosed NPL to the tune of Tk1,12,425.17crore or 11.69% of outstanding loans. At the end of December 2018, the total non-performing loans in the banking system was at Tk93,911.40 crore or 10.30%.

To optimize the recovery of NPLs, the government on May 16 this year issued a bailout scheme for loan defaulters to reschedule respective enterprise loans that turned default  at a 2 per cent down payment to avail 9 per cent interest rate and a 10-year payback regime with one year as grace period.

Last week, the BB detected a combined provision shortfall of Tk12,000 crore at 12 scheduled banks in the July-September quarter that exposed weak financial status of the banks with vulnerability to depositors’ funds. 

The banks facing shortfall are state-owned Sonali, Rupali and BASIC while private banking companies included Shahjalal Islami Bank, Social Islami Bank, Standard Bank, Trust Bank, AB Bank, Bangladesh Commerce Bank, Dhaka Bank, Mutual Trust Bank and National Bank.

The provision shortfall is that indicate banks' poor financial management. According to BB rules, banks need to keep 0.50 percent to 5 percent provisioning against all loans and advances, 20 percent against classified loans (CL) of substandard category, 50 percent against CL of doubtful category and cent percent against CL of bad or loss category.

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