• Tuesday, September 16, 2014

BASIC loans the costliest

Bad loans and weak governance to blame

Sajjadur Rahman

Scam-hit BASIC Bank has made loans more expensive than any of the 56 banks operating in the country, according to latest data of Bangladesh Bank.
The state-owned bank's weighted average interest rate on loans stood at 16.37 percent on March 31 this year, up by more than 3 percentage points than the average rate of all banks.
BASIC's interest rate spread, which is the difference between lending and deposit rates, is also highest among all eight state-owned banks. Its spread was 5.55 percent at the end of March, against the industry average at 5.15 percent.
“Bad loans and weak governance in the bank pushed its interest rate up,” said Monzur Hossain, senior research fellow at Bangladesh Institute of Development Studies.
At the end of December 2013, BASIC's nonperforming loans stood at 11.82 percent or Tk 1,282 crore of its total loans, down from 18.43 percent or Tk 1,863 crore in the previous quarter.
The credit for the fall in NPL goes to the central bank, which had relaxed loan rescheduling rules in December 2013 to safeguard businesses affected by political unrest. The BB move helped all banks, especially the state banks burdened with bad loans, reduce their NPL.
“But in reality, BASIC Bank's NPL will be no less than 40 percent of its total loans,” an official of the bank said, requesting not to be named.


The official said, before 2009 BASIC's NPL had never crossed 5 percent of its total loans.
He said it had been the best state-owned bank till 2009 when the Awami League-led government formed a new board of directors headed by Sheikh Abdul Hye Bacchu.
According to insiders in the bank, BASIC has lent around Tk 8,500 crore since September 2009. Of the amount, nearly Tk 4,500 crore are bad loans and may never be recovered.
“The bank charges higher rates from its clients to show profits. But why will people borrow at this high rate?” questioned a managing director of a private bank.
“It means borrowers are taking loans from the bank not to pay back,” he said.

Published: 12:00 am Sunday, May 04, 2014

Leave your comments | Comment Policy