Borrowing through mutual understanding is unethical practice for bank directors: Mustafizur Rahman

Published in The Daily Observer on Saturday, 21 January 2017

Bank directors borrow Tk 90,000cr

Huge lending raises questions regarding corporate governance

Economists and banking experts have expressed deep concern over borrowing money by the directors from the banking sector.

The directors of the banks borrowed almost Tk 90,000 crore from each other’s banks until September 30 through mutual understanding, according a Bangladesh Bank data.

Directors borrowed 14 per cent of the total credit. Banks total credit was Tk 6,35,987 crore.

Some 56 scheduled banks extended loan facilities to the bank directors. National bank sanctioned the highest loan amount of Tk 5,039 crore to the directors of other banks, followed by EXIM Bank Tk 4,0569 to directors of other banks, Bank Asia Tk3,954, Dhaka Bank Tk3,722 crore and AB Bank Tk3,536 crore to the directors of other banks.

Out of the state-owned banks, Sonali bank disbursed Tk 1,952 crore loan to the bank directors, followed by Agrani bank Tk 1,912 to directors and BASIC Bank Tk 571 crore to the directors.

Former BB deputy governor Ibrahim Khaled said the central bank should immediately curb the growing trend of borrowing by the bank directors.

He said previously directors use to take huge loans from their own banks, but now they borrow from the other banks through mutual understanding.

As a result, one director is taking loan facilities from other banks and the growing trend of this practice is matter of serious concern, he said.

Banks usually fail to recover such loans from the directors as they are highly influential people, said Mustafizur Rahman, Executive Director of Centre for Policy Dialogue (CPD).

Such lending, he said, had multiplied default loans of banks. He called it an unethical practice for the directors to borrow through mutual understanding. He said the central bank should formulate the guidelines spelling out the ceiling of credit the directors could take to skirt concentration of lending funds in their hands. Such unethical practice by directors, he said, made depositors money insecure in the banks.

A BB official said a large number of bank directors have became defaulters recently.

Dr Toufic Ahmed Chowdhury, Director General of Bangladesh Institute of Bank Management (BIBM) said if the directors take loan facilities to fulfill the credit criteria, it is not bad. In some cases, the directors are not maintaining proper rules and regulations to obtain the loan facilities.

As per the rules of Bangladesh Bank, one director is not eligible to take loan from their own bank but they can take loan from other banks against their 50 per cent of the banking share.