Too many lenders at the heart of bank woes

Excessive competition among too many banks to hook a limited number of big clients has been contributing to a rise in nonperforming loans, analysts and bankers said yesterday.

Banks' asset quality is also deteriorating as many of the lenders are running after few selective borrowers, they said.

The observation came at a two-day annual banking conference organised by the Bangladesh Institute of Bank Management (BIBM) at its auditorium in the city. Bangladesh Bank Governor Fazle Kabir inaugurated the conference.

BIBM Director General Toufic Ahmed Choudhury presented a keynote paper at the inaugural session of the conference.

Overall credit governance did not improve despite initiatives by the central bank, he said. On top of that, some loan scams were unearthed.

“This aggravated the overall banking environment.”

Incidents of trade-based money laundering continued in the absence of enforcement of available regulations, Choudhury said.

Citing a central bank assessment of internal control and compliance rating of different banks, he said only one bank had secured a 'strong' rating, whereas more than 66 percent of the banks got fair, marginal or unsatisfactory ratings.

The main objective of the conference was to provide a unique platform for interaction between bankers and academics, Kabir said.

This conference is an opportunity for the participants to establish a network among themselves, which could eventually help them develop their knowledge and skill in their professional arena, he added.

At the first plenary session of the conference, four research papers were presented by Bangladeshi and Indian academicians and bankers. Non-performing loans have become a burning problem as the volume of the country's bad loans is much higher than many other nations', according to the research paper 'Exploring the Strategic of Managing NPLs: An Analytical Revisit of NPL Management In Selected Asian Countries'.

Between 2011 and 2017 NPLs doubled.

The global standard of NPL is 2 percent or below, said Mohammad Omar Faruk from Bank Asia's research and strategy division while a research paper authored with two other local bankers.

“The NPL percentage in Bangladesh is 5 to 6 times more than that standard. This is alarming for the sector.”

As of June, total NPLs amounted to Tk 89,340 crore, which is 10.41 percent of the total loans given by the banking sector, according to data from the central bank.

In the last five years, NPLs is Pakistan, the Maldives and Sri Lanka declined at a noticeable rate, Faruk said.

China has recently taken strict measures against the defaulters. In an unprecedented crackdown, China's Supreme Court has blacklisted 6.73 million bank defaulters and restricted them from buying real estates, obtaining land from government, applying for loans, according to the paper.

The paper suggested that the authority concerned should not provide any subsidies and financial promotion to defaulters.

Most of the banks ran after the large borrowers, which has created the risk of rising NPLs, said Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh, a platform of private banks' managing directors.

“Competition and higher number of banks than what is required have got the country the worse NPL scenario,” he added.

Wilful defaulters should be marked and not to be given further credit, said Faruq Mainuddin Ahmed, managing director of Trust Bank.

Md Mehmood Husain, managing director of NRB Bank, and Anis A Khan, managing director of Mutual Trust Bank, also addressed the session.