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'Name and Shame strategy likely to reduce default loans'

  • Published at 11:21 pm July 15th, 2017
  • Last updated at 11:27 pm July 15th, 2017
'Name and Shame strategy likely to reduce default loans'
AMA Muhith, Finance Minister We are trying to reduce default loans and as part of this, the Bank Division decided to apply “Name and Shame therapy.” The disclosure of the list of 100 loan defaulters in parliament was made under the plan. But the country’s big loan defaulters are shrewd. They got their loans rescheduled just before the disclosure of 100 loans defaulters in parliament. So, they remained out of the list. [caption id="attachment_75024" align="alignleft" width="150"]Muhith-commerce_0 AMA Muhith, Finance Minister[/caption] If the central bank should bar the Beximco Group from having loans rescheduled. I will not talk anything about that. In 1983, the government had to take several steps to bail out four large defaulters. If it was not done, there would have been a severe crisis of production and employment, as they were the largest employers and the defaulters as well. Ten years later, there was another spurt of large defaults. The culture of default loans started after the country’s Independence and the rigid government policies were partly to blame. And now we are finding it difficult to get out of this culture — it is a very, very difficult exercise. But the situation has improved since then: default loans now account for 8-11% of the total loans, in contrast to 50% in the 1980s, he said. AB Mirza Azizul Islam Ex-Finance Adviser, Caretaker Government 2007-08 We broadly welcome the government’s move to reveal the names of loan defaulters in parliament. It is one kind of “Name and Shame” therapy and is likely to help to reduce default loans. The list of loan defaulters should be disclosed in parliament in six months interval. [caption id="attachment_75025" align="alignleft" width="150"]mirza.azizul.islam AB Mirza Azizul Islam[/caption] The culture of writing off default loans has intensified in the Bangladesh banking sector over the past several years. Yes, it clears the balance sheet for a fresh start in the banks, but the default loan culture should not be tolerated. Bangladesh Bank has deployed observers in 27 out of the 54 banks. That means half of the banks are now problem banks. There is no effective internal control within most of the banks. The central bank cannot set up vigilance teams in all 9,500 commercial bank branches. The reason why the banking sector is in a bad shape is because of a lack of good governance. Many say banking sector’s main problem is non-performing loans or default loans but the real issue is good governance. We have to know the structure of the banking sector governance. External governance is maintained by the central bank but the internal governance will be maintained by the banks themselves through their effective internal control. Khan Ahmed Sayeed Murshid Director General, Bangladesh Institute of Development Studies [caption id="attachment_75026" align="alignleft" width="150"]Murshid Khan Ahmed Sayeed Murshid[/caption] The “Name and Shame” therapy does not work for the Bangladesh loan defaulters. They do not care that such disclosure will humiliate them in the society. The loan defaulters may show that how powerful they are as the names come in parliament. The default loan situation will be get improved unless there is a strong political will. The banking sector has default loans of Tk1,11,347 crore, which is as huge as the total budget deficit. And almost one-third of the total budget outlay of Tk4,00,266 crore. Besides, the amount is so large that a good number of development projects can be funded with it across the country. Mir Nasir Hossain Former President, FBCCI  Usually, a business man becomes a loan defaulter where dull situation prevails in the economy, demands fall and market contraction occurs. These are reasonable factors for being default. But there are many defaulters who have not excusable cause. This is also due to absence of professionalism in the bank management. This is larger in scale in the state-owned banks than private banks. [caption id="attachment_75027" align="alignleft" width="150"]Nasir Mir Nasir Hossain[/caption] If we look into the figure of default loans, the lion share is held by the government banks. On the other hand, the figure is very small in the private sector banks as the bank management is responsible to shareholders. The state-owned banks approve loans being influenced by the boards. The loans should have provided on the basis of borrowers’ repayment capacity, possible return rate and track records of the applicant. The government appoints board of directors from different profession. But they do not have enough capacity to asses the documents to justify the eligibility of loan seekers. Issues like political affiliation are also taken into account while approving loans. As a result, a non-qualifier avails loan and willfully becomes a defaulter. In reining the default loans, the government as well as the private sector bank management will have to exercise more professionalism in disbursing loans. It is the most important that in approving loans project viability must be considered. A real business man does not want to be defaulter as it tarnishes the image of the respective company. Proper implementation of law as well as transparency in disbursement can ease the default loans. Toufic Ahmad Choudhury Director General, Bangladesh Institutions of Bank Management [caption id="attachment_75028" align="alignleft" width="150"]Toufic Toufic Ahmad Choudhury[/caption] The willful defaulters and plunderers feel encouraged as more and more public money is injected into the troubled banks without holding anyone accountable. Good governance will not be fully established in banking unless people like the former BASIC Bank Chairman Sheikh Abdul Hye Bacchu are punished for their corruption. The government provides recapitalisation to financially weak banks instead of taking exemplary legal action against those who make the banks vulnerable. The government has allocated Tk2,000 crore in the budget for recapitalisation of the state-owned banks. The recapitalisation of the state-owned banks should be done by the government because those banks are owned by the government. The culture of impunity must end in the banking sector and good governance is to be ensured.
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