The central bank has also asked them to take quick action to strengthen their respective capital bases
After the Finance Ministry, now Bangladesh Bank (BB) has issued similar instructions to four state-owned banks about reducing the ever-increasing default loans.
In addition, the central bank has also asked them to take quick action to strengthen their respective capital bases since they have been facing a capital shortfall for a long time.
The four banks – Sonali Bank, Janata Bank, Agrani Bank and Rupali Bank – were also asked to invest their excess liquidity to make a profit.
According to Bangladesh Bank sources, these four state-owned banks have been instructed to reduce excessive default loans, capital and provision shortfalls.
They have also been told to expedite disbursement from the incentive packages announced by the government to tackle Covid-19 economic fallouts.
It also came to the central bank's knowledge that loans were being distributed to the same circle of people, depriving new entrepreneurs and other loan seekers, which they ordered to cease immediately.
The instructions were given during a quarterly meeting with the four banks on Monday, which was presided by Fazle Kabir, governor of Bangladesh Bank.
The banks were also instructed to explore avenues, including the issuance of bonds, to raise capital. The excess liquidity has put lenders in trouble recently due to lack of investments.
The central bank had instructed them to speed up the loan disbursement following corporate governance.
The excess fund at the banks stood at Tk102,177 crore, 44% of the surplus liquidity in the banking sector.
According to the Financial Institutions Division (FID), the finance ministry gave six state-owned banks a recovery target of Tk1,605 crore bad loans for the first quarter (July-September) of the current fiscal year (FY22).
But they were able to recover only Tk155.59 crore of the set target during the first two months of FY22, only 9.69% of the whole target.
That means within one month, they have to achieve the remaining 90.31%.
Janata Bank fulfilled only 1.22% of their target while Bangladesh Development Bank Limited (BDBL) fulfilled 5.73%, Sonali Bank 6.24%, Agrani Bank 7.50%, Basic Bank 11.34% and Rupali Bank 53.94%.
Zahid Hossain, former lead economist of the World Bank’s Bangladesh office, suggested that the government's unwillingness to punish the bank officials concerned, despite their failure to meet the targets, as the reason for the continuous failure of the banks in loan recovery.
“They (FID) say it is a regular process. However, if you notice, you will see that the government banks are lagging behind here regularly. It is also a continuous process,” he said.
Asked about the reasons for this, he said: "I think there are two main reasons. Number one is the political culture. Those who default loans from government banks are mostly under the umbrella of big political parties.”
As a result, banks cannot put pressure on them if they want to. “Again, they are not given proper powers by the government in this regard,” he added.
The second reason is the lack of emphasis on proper accountability and punishment of bank managers.
“Officials of the state-owned banks believe that they have a specific duty hour and doing that is enough. That’s why they do not give any extra effort. The Ministry of Finance also does not focus much on the punishment when the targets are not met,” he added.
AB Mirza Azizul Islam, economist and former finance adviser to the caretaker government, emphasized the goodwill of the banks when asked how it was possible for state-owned banks to reduce the growing default, contrary to the regular directives of the Bangladesh Bank and the FID.
Speaking to Dhaka Tribune, he said that the goodwill of the state-owned banks is primarily important to increase the recovery of defaulted loans, otherwise the instructions will not work.
“Then in the banking process, first of all, they have to focus on quick recovery of these loans. Considering their ability, they have to decide for themselves how much progress they will make in how long. Otherwise, just by pressing from above, you will not get much benefit.”
They also have to be strict. The deposit has to be confiscated whether it is big or small. This way, willful defaulters will be more careful and repay their loans diligently.
In addition to this, the cases that have been stuck in the finance court for years need to be expedited, the economist opined.
“If necessary, sit down with each stakeholder. The help of Bangladesh Bank and the Chief Justice should be sought. Overall, the debt collection guideline needs to be tightened. I think if these measures are taken first, it is possible to speed up the recovery of defaulted loans,” he added.