BB frets about rising NPL in 3 new banks

Bangladesh Bank

Ballooning nonperforming loans (NPL) in three new banks -- The Farmers, NRB Commercial and Meghna -- have become a matter of serious concern for the Bangladesh Bank, said its senior officials yesterday.

As of September, Farmers' NPL amounted to Tk 377.68 crore, up Tk 100 crore from a year earlier. It now accounts for 7.45 percent of the four-year-old bank's total outstanding loans.

Meghna's NPL soared to Tk 152 crore at the end of September from Tk 57 crore a year earlier.

NRB Commercial's NPL stood at Tk 194 crore at the end of third quarter of this year, up from Tk 128 crore a year earlier.

"Rising default loans have become a matter of serious concern for the country's banking sector," said BB Governor Fazle Kabir at a workshop for journalists, jointly organised by the Economic Reporters Forum and the central bank.

Default loans in the sector did not increase suddenly, he said. "It has been maintaining an upward trend for a while now," he added.

"There was no need to provide licences to the new nine banks," Ahsan H Mansur, executive director of the Policy Research Institute, told The Daily yesterday.

The BB provided licences to nine banks considering the political background of the owners of the banks despite severe criticisms from different corners, he said.

The new banks have drastically adopted an aggressive lending in the competitive market, which has ultimately deteriorated their asset quality. 

"The government is now mulling over giving licences to more new banks. This will not bring any good for the financial sector," he added.

Of the three troubled new banks, it is the Farmers Bank whose problem appears to be most acute.

The bank has been facing liquidity crisis acutely for the last few months due its failure to mobilise funds from clients despite offering 12 percent interest on its different deposit schemes.

The cash-strapped bank got a short-term loan amounting to Tk 96 crore by way of repo on Tuesday from the central bank to meet its instant liquidity demands.

The bank counted 6.75 percent interest to take the loan through the repo, which is much higher than that of the inter-bank call money rate. The inter-bank call money rate is now less than four percent.

Earlier this month the bank twice failed to honour a cheque worth Tk 35.44 crore presented by the Bangladesh Telecommunications Company Ltd due to fund shortage. The state-owned telecom firm eventually got the sum.

The central bank had earlier slapped some restrictions on fresh loan disbursement and opening of new branches, with a view to protecting depositors' money given the precarious financial health of the Farmers Bank. It has also appointed an observer in the new bank to ensure the credit discipline and restore the corporate governance.

But the bank has frequently breached the central bank's restrictions and disbursed fresh loans.

The BB has recently grilled NRB Commercial's managing director due to his alleged involvement in financial scams.

"The central bank should take initiative to merge the new weak banks with the stronger ones for the best interest of the banking industry," Mansur said.


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