Since obtaining licences under political consideration in 2012, none of the nine new banks have managed to fulfill the four conditions they were given by Bangladesh Bank before going into operation.
Rather the authorities of the banks are now unitedly pushing the central bank to relax the conditions.
Local entrepreneurs own six of the banks: Midland Bank Limited, Meghna Bank Ltd, The Farmers Bank, Union Bank Ltd, Modhumoti Bank Limited, South Bangla Agriculture and Commerce Bank Limited.
The other three – NRB (Non-resident Bangladeshi) Commercial Bank Limited, NRB Bank and NRB Global Bank Ltd – belong to Bangladeshi expatriate entrepreneurs.
In a letter written to Bangladesh Bank, the banks urged that it ease the conditions on enlistment in stock markets, providing agricultural loans, corporate social responsibility (CSR) spending and opening a branch in villages against each branch in cities.
A Bangladesh Bank official, requesting anonymity, said despite providing licences, the central bank could not completely monitor these banks as they are owned by politically influential people.
“This is why the banks are operating whimsically, leaving the conditions set by the BB unfulfilled four years after securing licences. And now they want the conditions relaxed,” he added.
Some of the banks have been linked to loan scam, aggressive lending, high default loans and violation of banking regulations, among other issues, posing a serious threat to the banking sector.
A recent report of the central bank termed the irregularities of The Farmers Bank and NRB Commercial Bank Limited systematic risks for the entire sector.
Bangladesh Bank, the report further said, had failed to make the two banks follow its rules, despite repeated attempts and warnings in this regard.
When contacted, M Mahfuzur Rahman, executive director and spokesman for the central bank, said if the licence-holders are more powerful than the authorities, they will never comply with any kind of condition no matter what.
“Hence it is mandatory that the central bank be made more competent, earnest and powerful. But we are not on the right track in any of the three components, thus failing to oversee the operation of the nine banks properly,” he said.
Had Bangladesh Bank had proper control over the banks, they would have followed the conditions as mentioned in their licences, causing less anomalies in the banking sector, the official observed.
He also blamed Bangladesh Bank for the situation, as it failed to take action against the banks on time, despite sensing the issues taking place.
“So, (considering the overall situation) I am concerned and in panic and fear. If the situation continues, the country’s banking sector will face much more debacle in future,” Mahfuzur further said.
It is high time the authorities took the helm of the situation, otherwise it will worsen to a greater extent. Customers will lose confidence and trust on any bank operating in Bangladesh, he stated.
According to Bangladesh Bank officials, despite political consideration, the central bank had issued the licences to the nine banks on 16 conditions including innovation in providing services.
But not a single bank could bring out a new product in the last four years. Instead the banks have been engaged in ill competition among themselves, ultimately running “aggressive banking.”
The central bank officials also said some of the conditions have already been relaxed following pressure and intervention from a special quarter.
Speaking about the situation, former Banglaesh Bank Governor Dr Salehuddin Ahmed figured out the central bank’s loophole in ensuring the implementation of the conditions.
The central bank should be strict in this case, he suggested, saying: “Defying rules is like an ailment for new banks. Moreover, these banks are involved in ill competition through aggressive lending.”
This malpractice is also spreading in other banks, all of which need solution too, added the seasoned banker.
The Farmers Bank is already facing an acute financial crisis. Duly, it is failing to both disburse loans and return the deposited money to its clients, causing them to express resentment over the poor services of the bank.
The NRB Commercial Bank is also on its way to embracing a similar fate.
However, the BB has finally taken some measures to help the two banks get rid of the problems as it restructured the board of directors of the banks and removed their managing directors (MDs).
A report of the Finance Ministry reads that The Farmers Bank has been experiencing liquidity crisis for the last one year.
“The situation is so bad that the bank now is not even in a state to repay the deposited money to its customers. The bank authorities kept on failing to maintain its cash reserve ratio or CRR with the BB since April last,” it continued.
The NRB Commercial Bank, the report found, is gripped with irregularities in loan disbursement and poor internal controlling system.
Pradeep Kumar Dutta, adviser of The Farmers Bank, said the governing body of the bank could not work properly.
“More loans were sanctioned due to pressure from our board of directors, leading to the financial crisis,” he said, adding that the others banks facing similar problems can take lessons from The Farmers Bank.
Ever since the start of their journey, many of the nine banks saw their MDs lock into dispute with their respective board of directors.
In such a case, AKM Shahidul had to step down as the managing director of Midland Bank.
Meghna Bank MD Kaiser A Chowdhury did the same over regular intervention of the bank’s governing body in the bank’s activities. Mohammad Nurul Amin was later appointed to the post, but was forced to resign over the same issue.
Nurul Amin said: “The instigation or unprofessional attitude or even unwanted pressure from the co-owners of a bank are to blame for a bank facing recent issues.
Replying to a question whether Meghna Bank embodied such issues, he said: “I stood down as the bank’s MD on a personal ground.”
Among the BB conditions, the new banks were asked to issue initial public offering equivalent to their sponsors’ capital within three years of inception, meaning they were supposed to float shares worth Tk400 crore against the entrepreneurs’ investment of the same amount after the stock market enlistment.
But, none of the nine banks managed to do so even in four years.
While issuing the licences in 2012, the BB had asked the banks to disburse at least 5% of their total loans as agriculture credit in a year and spend at least 10% of their net profit in the interest of underprivileged people under their corporate social responsibility programs, but both conditions are yet to see the light of the day.
The government’s move to approve the banks had drawn flak, with many demanding that the banks not be given go-ahead to operate.
Then again, the six banks owned by local entrepreneurs managed to earn approval with the pledge to bring rural population under banking coverage.
On the other hand, the three banks belonging to NRBs bagged green signal from the government as their owners had promised to boost remittance inflow and foreign investment in Bangladesh.
The article was first published on Bangla Tribune