Banks lack disaster recovery plan: BIBM study

Some 78 percent of banks in Bangladesh do not have a disaster recovery plan in place, putting themselves at risk of those spawning from various calamities, according to a survey.

"This is due to a lack of awareness about the consequences, risks and losses posed by disasters," said the survey carried out by the Bangladesh Institute of Bank Management (BIBM).

The research report titled "Addressing Disaster Risk by Banks: Bangladesh Perspective" was released at a seminar at the auditorium of the BIBM in the capital yesterday. Shah Md Ahsan Habib, a director of the institute, presented the paper, while Toufic Ahmad Choudhury, director-general, chaired the session.

The survey said banks do not have a system in place to record relevant data on disaster risks and losses and even physical and infrastructure losses.

Banks are not in a position to identify disaster incidences, which are also blamed for some of their non-performing loans, the report said.

The survey used the fire in a garment factory of Standard Group in November 2013 to show how such an incident can inflict huge damages to a company.

The fire destroyed the nine-storied factory and cost the owner hundreds of crores of taka. 

The garment exporter was a major corporate client of a local bank, which lent $10 million to Standard Group. The factory has remained shut since the fire struck.

The financing was taken in the form of letter of credit under the central bank's export development fund facility. But the client is not in a position to adjust the financing.

The borrower was supposed to pay back the loan within 180 days. Later, the repayment period was extended to 2 years as per instruction of Bangladesh Bank. Thus, it hurt the profitability of the respective bank, according to the report. 

In another instance, the report said, cyclone "Mora" affected agriculture and agro-based businesses badly in Cox's Bazar and Teknaf in May this year.

It forced a local bank branch to classify loans of more than Tk 50 crore.

What is more, hundreds of borrowers were irregular in their installment payments affecting the bank's overall performance. The report said the central bank's climate risk fund was utilised very poorly due to reluctance of banks.

Utilisation fell by 60 percent to Tk 24.90 crore last year from Tk 62 crore the previous year.

The BB created the Tk 204-crore fund to help banks withstand the impacts of climate change. 

Banks mostly use the fund in areas such as environment degradation, climate resilience, carbon emission and disaster management.

According to the survey, 99 percent of banks and non-bank financial institutions are engaged in post-disaster activities such as blanket and relief distribution as part of their corporate social responsibility.

Banks are supposed to lend in different locations, including disaster-prone areas but they are reluctant to do so because of default risk, said Abu Hena Mohd Razee Hassan, a deputy governor of the BB. So, it is vital for banks to address the causes and consequences of risks, he said.

Helal Ahmed Chowdhury, supernumerary professor of the BIBM, suggested that banks form a disaster fund to manage related risks.