BB governor fires warning shots at state banks

Bangladesh Bank Governor Fazle Kabir yesterday cautioned four state-owned commercial banks and instructed them to grant loans maintaining due diligence so that their financial health improves.

The warning comes as default loans in Sonali, Janata, Agrani and Rupali soared in the first quarter of the year.

In a meeting with bankers yesterday, Kabir said the government will stop injecting capital into the state banks at some point to meet their deficits.

So the banks must become self-reliant, he said, while advising them to refrain from giving out big funds and just concentrate on small loans.

Observers appointed to the state banks will assess whether the loans are being granted in line with the rules.

He went on to urge the banks to rise above political pressures when sanctioning loans.

This was the first meeting of Kabir with the state banks after his appointment as the central bank governor in March. Prior to the appointment, Kabir was the chairman of Sonali Bank.

Every year, the state banks are given about 12 performance targets on the basis of agreements signed between them and the central bank.

At yesterday's meeting, Kabir evaluated how the banks fared with their targets in 2015.

As per the targets, the default loans of each bank are supposed to decline 20 percent in December 2015 from a year earlier. In reality, the banks' bad loans went up.

They also failed to meet their realisation targets against their default loans.

They had a target to retrieve Tk 975 crore from top 20 defaulters in 2015, but succeeded in recovering only Tk 187 crore. In the same year, the banks recovered only 43 percent of their target -- Tk 2,925 crore -- from other defaulters.

At yesterday's meeting, the banks presented their side of the story to the central bank governor.

Since the Hall-Mark scam, a central bank inspection team visits a number of branches each year. In qualitative judgement, many of the loans are classified.

As a result, the amount of bad loans increased, the state bank officials said.

As for realisation targets, the banks said that they have run into a wall in most cases. Not much progress was achieved even after filing cases against the defaulters.

The governor also said the banks' expenditure will increase after the new payscale is implemented. Subsequently, he asked the banks to take steps such that their efficiency increases with the rise in costs.

The governor also urged the banks to reduce the number of loss-making branches. As of December last year, the total number of loss-making branches of Sonali, Janata, Agrani and Rupali stood at 183.