Maintaining non-performing loans (NPLs) of the country’s small and medium enterprises (SMEs) at lower level is being considered as a major administrative threat for the banks as they are facing difficulties to recover the loans from the field levels.
SME banking sector requires a separate recovery cell to look after the risk of SME banking, said the bankers while addressing a seminar styled “Sustainable Business Model for SME Banking” held yesterday at the auditorium of Bangladesh Bank Training Academy (BBTA) in the capital.
Bangladesh Bank and BBTA jointly organised the seminar with SME Foundation Managing Director Dr Syed Ihsanul Karim in the chair.
Bangladesh Bank Governor Atiur Rahman attended the seminar as chief guest while deputy governor Abul Quasem and former deputy governor Khondkar Ibrahim Khaled as special guests. Expressing concern over the challenges on SME banking sector, the country’s leading bankers stressed the need for setting up a separate recovery cell with necessary manpower, so they can launch massive drives for the recovery of the non-performing loans.
Eastern Bank Managing Director Ali Reza Iftekhar came up with a presentation on “Sustainable Business Model for SME Banking” from the banking perspective while IDLC Finance Managing Director Selim R.F. Hussain from the non-banking financial institution perspective.
During his presentation, Ali Reza Iftekahr noted that SME banking was a young and dynamic industry in Bangladesh as 25% people of its overall workforce are involved in SME sector, which has 25% contribution to the country’s Gross Domestic Product (GDP).
“But the commercial banks are reluctant to move towards the SME banking due to the difficulties in loan recovering. Most of the small enterprises don’t maintain proper accounting system, which also discourage the banks to lend them money,’’ he said.
Moreover, people still feel shy to grow business in this sector although there is a huge opportunity for the banks to mobilise their deposits at low-cost from SME sector, he added.
Ali Reza Iftekahr proposed the commercial banks to set their own parameters for SME lending and establish separate recovery cell to overcome the risks.
Although the NPL rate is growing up in this sector but it is still under control comparing to the other business sectors. NPL rate is very low in the private banks than the state-owned banks, he added.
“The total NPL rate was 7.90% in the SME sector of which 17.20% in state owned banks, 5.35% in private banks and 11.79% in NBFIs.”
The contribution of the private banks in the SME sector is higher than the national commercial banks though they have the highest number of branches across the country.
The SME loan growth of the private banks was 73.65% in December 2013 while the growth of the national commercial banks was only 13.32% and the foreign banks 7.99%, he said.
In his presentation Selim RF Hussain noted that the financiers faced major challenges in financing SMEs due to the nature of the operations and lack of infrastructures in SME business.
Lack of information, high interest rates and stringent guarantees are the major barriers SMEs face while trying to access finance, he pointed out.
“The SME sector is very lucrative business for NBFIs as NPL of this sector is still lower than any other business. However, we need infrastructural improvement to encourage more SME clients and SME growth,” RF Hussain.
Speaking as chief guest BB governor Atiur Rahman said: We have to reach the customers for real economic growth. Western countries faced a financial crisis as they could not touch the real customers. As we are trying to be closer to our customers by financial inclusion, we are doing good business amid the global financial crisis.
“Banks have to move quickly towards the risk-base supervision to grow business further in the SME sector. We are not worried about the big defaulters, but about the small defaulters as they are our real customers,” he said.
Urging the foreign banks to move in the SME banking sector, the governor mentioned that the SME loan growth remained higher in last year amid overall sluggish investment.
