New banks in risky lending: BIBM study | The Daily Star
12:00 AM, August 11, 2017 / LAST MODIFIED: 12:06 AM, August 11, 2017

New banks in risky lending: BIBM study

The nine new banks are in an aggressive expansion mode, putting their depositors' money at risk, a survey by the Bangladesh Institute of Bank Management (BIBM) found.

Their non-performing loans rose considerably over the last two years due to irregularities, according to the survey.

The survey report -- An Evaluation of the Performance of New Commercial Banks -- was released yesterday by Mohammed Sohail Mustafa, associate professor of BIBM, at a workshop held at the institute's auditorium yesterday.

The report dealt with the performance of the nine banks, which got licences upon political consideration, since their inception in 2013.

Of the nine banks, three are sponsored by non-resident Bangladeshis -- NRB, NRB Commercial and NRB Global -- and the other six -- Union, Modhumoti, Farmers, Meghna, Midland, and South Bangla Agriculture and Commerce -- by locals. 

The report found that the new banks are lending aggressively to make more profit; the advance deposit ratio of five banks -- Farmers, Union, Meghna, NRB Global, NRB Commercial -- was beyond the authorised limit of 80 percent last year.

Furthermore, the non-performing loan ratio of the new banks has been on the rise over the last two years, led by Farmers Bank, which saw an increase of 4 percentage points.

So much that the Bangladesh Bank was compelled to appoint an observer in Farmers and another in NRB Commercial -- within only four years of their commencement -- after detecting loan irregularities, said the research report.

Although they have made significant hires in the four years, they failed to establish goodwill in the talent market.

A total of 6,610 employees were recruited in the last four years in the new banks, but in hiring for entry-level positions some of them emphasised political affiliation instead of academic and professional qualifications of the candidates.

Besides, they poached staff from the 47 old banks by offering higher positions and financial benefits, creating an imbalance in the entire banking sector, according to the research.

The new banks were supposed to concentrate on rural banking for financial inclusion but their focus has been on urban-centric corporate banking, said the report.

For instance, South Bangla Agriculture and Farmers had said their mission was to serve the agriculture sector. But their contributions in agriculture loans were very insignificant last year.

Agriculture financing accounted for only 1.94 percent of Farmers' total loan portfolio and 2.11 percent for South Bangla Agriculture's. The three NRB banks were supposed to bring in foreign investment in the country but they are acting just like the old banks, said Yasin Ali, supernumerary professor of BIBM.

“Just to get the licence the NRB banks promised to bring in foreign deposits,” he added. The new banks expanded their branch network by 34 percent in contrast to 5 percent by the old banks in 2016.

Helal Ahmed Chowdhury, another supernumerary professor of BIBM, suggested the new banks should stop aggressive lending and should not buy back loans from other banks without due diligence.

“The new banks started their journeys with various challenges amid political turmoil,” said Mohammed Nurul Amin, managing director of Meghna Bank.

The new banks are labelled as political banks, which is the main barrier for foreign transaction, he said. He went on to call for boycotting the defaulters involved in politics to flush out the default culture.

The banks were given licences with the hope of creating employment, said Khondkar Ibrahim Khaled, a former chairman of Bangladesh Krishi Bank. “Their massive hiring over the last four years ultimately fulfilled the government's wish.”

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