Default loans pile up in new banks

Default loans at nine new private banks more than trebled to Tk 1,761 crore in the first quarter of 2018 from the same period a year ago mainly because of illicit lending practices, according to Bangladesh Bank data.

The banks are Meghna, Midland, Modhumoti, NRB, NRB Commercial, NRB Global, Farmers, South Bangla Agriculture and Commerce, and Union.

The central bank's investigation found that a sharp increase in the non-performing loans of the banks, which got licences in 2013 on political consideration, was the consequence of loan-related scams and corruption.

When the licences were offered many experts had warned that the financial health of the new banks would deteriorate in the coming years, said AB Mirza Azizul Islam, a former adviser to the caretaker government.

"Finance Minister AMA Muhith publicly said that issuing new licences was a political decision of the government. But we had opposed the decision at that time," he said.

Most of the directors and chairmen of the nine banks are directly involved in politics.

The large amount of default loans is a reflection of poor corporate governance at the fourth-generation banks, said Islam, also a former chairman of the Bangladesh Securities and Exchange Commission.

The banks have also disbursed huge loans to politically influential individuals and much of these loans turned sour, he added. The central bank has recently restructured the board and the management of two new banks -- Farmers and NRB Commercial -- for their deteriorating financial health.

The BB also removed the managing directors of the two banks and forced some directors to resign in order to establish corporate governance.

Farmers Bank lent more than Tk 3,000 crore violating banking norms and the previous board was directly involved in the irregularities, according to a central bank probe report.

The amount of classified loans in the bank stood at Tk 968 crore as of March, which accounted for 18.73 percent of its total outstanding loans, BB data showed.

Md Ehsan Khasru, managing director of Farmers Bank, told The Daily Star that default loans in the bank would increase slightly in the coming months as it has recently introduced a 'transparent method' to find out the asset quality.

"But 80 percent of the classified loans will be recovered soon as we have rolled out a recovery programme," he said. NPLs in NRB Commercial Bank rose to Tk 206 crore as of March, up from Tk 73 crore a year earlier.

Khondoker Rashed Maqsood, managing director of NRB Commercial Bank, declined to comment.

Salehuddin Ahmed, a former governor of the BB, said the nine banks had not taken strong measures to recover the default loans. As a result, it is sending out wrong signals to the clients of the banks.

He said, "People continue to lose confidence in the banking sector because of the poor performance of the fourth-generation banks."