BB governor blasts state banks for high nonperforming loans

Bangladesh Bank Governor Fazle Kabir yesterday lambasted the state banks for their high nonperforming loan ratio, which has taken the industry's ratio to upwards of 10 percent.

“This is not abnormal but alarming,” Kabir said while addressing the quarterly luncheon meeting of the Metropolitan Chamber of Commerce and Industry at its headquarters in Dhaka.

His comments came after the business community's concern about the rising NPL, which is encumbering the country's banking sector.

Kabir went on to blame the six state banks -- Sonali, Janata, Agrani, Rupali, BASIC and BDBL -- for the high NPL that ultimately pushes up the lending rates.

Another reason for the high NPL is that the banks' lending is concentrated to big industrial groups.

For instance, 40 percent of Janata's loans are to nine business groups, he said. “This is unacceptable.”

Furthermore, most of the banks' loans are limited to a select few sectors and regions, mainly Dhaka and Chittagong.

“This is not useful for the balanced development of the country. We don't want to concentrate loans to a few business groups or areas,” the BB governor said, while urging banks to lend more to the small- and medium-sized enterprises.

 The lack of collateral is the main barrier for SMEs to getting bank loans.

Kabir suggested the banks consider skills, training and education as intangible collateral for SMEs.

The BB governor also touched upon the issue of sliding remittance, which he blamed on the rise in popularity of mobile financial services (MFS) that come with lower transaction costs than Western Union, the standard channel for sending money from abroad.

In the first seven months of fiscal 2016-17, remittance stood at $7.18 billion, down 16.9 percent from a year earlier, according to data from the central bank.

Last week, Abdul Matlub Ahmad, president of the Federation of Bangladesh Chambers of Commerce and Industry, brought to the fore the phenomenon of digital hundi.

Digital hundi is an illegal transfer of funds from abroad, in which the remitter deposits the amount to a vendor in his host country, who then instructs his network in Bangladesh to deposit the sum to the requested MFS account.

“We are losing out to the non-banking channel in the Middle East and Southeast Asia,” Kabir said.

To send money through the official channel, the remitter has to take service from the Western Union, which charges high rates of commission. In contrast, the commission rate is low through digital hundi.

Furthermore, it takes only half an hour to send money through digital hundi, according to Kabir. “That's why it is getting popular, much to our concern.”   

Kabir has summoned an exhaustive research of the illegal fund transfer channel from the Middle-East and South Asia, the findings of which are due in a month.

“We did not feel the pinch of the falling remittance as we have healthy foreign currency reserves. But we should always be careful,” he added.

At the event, Nihad Kabir, president of the MCCI, requested the BB governor to review the Foreign Exchange Regulation Act, 1947 and its relevant guideline in light of the country's growing economy and foreign currency reserves.

The move would facilitate foreign trade and allow businesses to acquire technology and build research and development capacity overseas, she said.

In response, the BB governor said the central bank has no immediate plans to liberalise the capital account but it will loosen the terms and conditions for the 'export retention quota'.

The MCCI president also requested the BB governor to set the same limit for using the Export Development Fund for all sectors.  At present, the limit for the garment sector is $20 million and for others $15 million.