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Political unrest deepens scam-hit bank crisis

  • Published at 07:12 pm December 31st, 2013

The country’s banking sector faced a serious setback in the year 2013 because of the increased amount of non-performing loans coupled with gross anomalies in loan disbursement and realisation.

Lower repayments from the major borrowers also put the banking sector on the back foot in the backdrop of sluggish business condition due to the ongoing political turmoil.

The rate of classified loans reached at 12.79% of total outstanding loans and advances in September 2013 from 10% in December 2012. In 2008, the classified loan in the banking sector was 10.79%, according to the central bank statistics.

Bangladesh Bank has faced the biggest challenge to maintain the NPL at a tolerable level in its annual balance sheet at the year-end. The central bank had earlier relaxed the loan rescheduling rules for the Small and Medium Enterprises (SMEs) and others big borrowers with an aim to reduce NPL largely in banks’ annual balance sheets.

Apart from this, the BASIC Bank financial scam has also hit hard the banking sector further last year while this sector was trying to recover from the sore of a Tk3,500 crore scam by Hall-Mark Group and five other companies between the years 2010 and 2012.

Bangladesh Bank found another loan forgery of around Tk4,500 crore approved by the bank’s board and top management mostly without proper documents and scrutiny.

Bangladesh Bank has signed a Memorandum of Understanding (MoU) with BASIC Bank for its smooth functioning after the debacle.

BASIC bank anomalies in loan disbursement has also led the total NPL of the banking sector to higher level as most of the loans of the bank were finally declared classified at the year end.

According to Bangladesh Bank, classified loans were in declining trends until 2011, but suddenly turned around in the year 2012 due to the repeated credit scams. Moreover, the newly imposed strict loan classification and provisioning regulations of the central bank could be treated as one of the major cause for the rise in classified loans.

The classified loans rose to 10% from 6%, with an increase of 3.8% by the end of December 2012 compared to the end of December 2011.

“The rate of classified loans of the banks has increased this year due to the adverse impact of the ongoing political unrest on business,’’ says a Bangladesh Bank statement.

Credit inflow remained shrunk throughout the year as the banks were very restrained in loan disbursement following several loan forgeries in the banking sector. Moreover big borrowers were also reluctant to take loans due to sluggish business environment amid political unrest.

Throughout the year, the credit inflow experienced down trends as the statistics show 13.39% in January, 12.73% in February, 10.29% in March, 11.12% in April, 10.61% in May, 8.97% in June, 8.44% in July, 7.11% in August, 7.40% in September, 7.50% in October and 7.83% in November.

However, the interbank call money rate remained stable between 7% and 8% throughout the year due to lack of credit demand and excess liquidity in the banks.

The country’s foreign exchange reserve hit $13bn milestone in January and $18bn in December 2013 for the first time thanks to the large growth in remittance and export as well.

The overall remittance inflow was also seen in lower trends last year as the country received a total of $11.56bn in the first 11 months which was $1.32bn lower from a total of $12.88bn in the corresponding period of the last year.

“Overall banking business in 2013 was not good due to the political unrest and instability,’’ BRAC Bank Managing Director Mahbubur Rahman told the Dhaka Tribune. “As the country’s overall economy has been badly hampered due to the political turmoil, banking sector felt the pinch too,” he added.