Published in Daily Sun on Sunday, 24 December 2017
New banks turn burden for govt
Farmers Bank, NRBC Bank in deep trouble
Most of the fourth-generation banks that secured permission on political consideration have become a burden for the government, bankers and economist have observed.
They said the banks created widespread controversies in the last four years.
Bangladesh Bank approved nine private banks in 2013 reportedly due to pressure from government high-ups although the regulator did not plan to approve more than three banks from 37 applications, said a paper of Bangladesh Institute of Bank Management(BIBM).
Of the nine new banks, Farmers Bank and NRB Commercial Bank are in the centre of attention owing to their mounting non-performing loans coupled with mismanagement.
The central bank recently removed Farmers Bank Managing Director Akm Shameem and NRB Commercial Bank Managing Director Dewan Mujibur Rahman for alleged fund embezzlement and their failure in protecting the interest of the depositors.
Earlier in November, FBL Chairman Muhiuddin Khan Alamgir and Audit Committee Chairman Mahabubul Haque Chisty resigned from their position.
Finance Minister AMA Muhith on Thursday blamed the founders for the alleged loan scandal and mismanagement at Farmers Bank.
Earlier in 2013, the government approved three NRB banks and two agriculture-focused banks to boost the remittance flow and promote agricultural finance.
But new banks did not follow the regulations as they started concentrating on financing in textile sector in Dhaka and Chittagong.
As per BB regulation, the new banks should have disbursed at least 5 percent of their total loans in agriculture sector.
But the agriculture-focused Farmers Bank and South Bangla Agriculture and Commerce Bank spent only 1-2 percent of their total loans in the agriculture sector in last two fiscals.
Of the new banks, Farmers Bank was backed by former Home Minister Mohiuddin Khan Alamgir, Modhumoti Bank by AL lawmaker Fazle Noor Taposh and Union Bank was backed by Jatiya Party’s HM Ershad. Bangladeshi expatriate in the US Farasat Ali was the man behind NRB Commercial Bank while British immigrant Iqbal Ahmed was the sponsor of NRB Bank, ruling Awami League MP Ashiqur Rahman initiated Meghna Bank and Lockpur Fisheries owner SM Amjad Hossain sponsored South Bangla Agriculture and Commerce Bank.
Economists recommended having an independent commission as the regulator for the financial sector and said the central banks should refrain from approving new banks on political pressure.
At the end of 2016, the central bank warned nine new banks as their non-performing loans increased by over 43 percent to Tk 561 crore at the end of September, from Tk 392 crore three months ago.
At the end of December 2015, the NPL of these banks was less than Tk 45 crore.
By September this year, the NPL figure of Farmers Bank stood at Tk 377 crore, which is 7.45 percent of the total loans disbursed so far. And the NRBC bank’s NPL was Tk 194 crore during the same period.
Bangladesh Bank former Governor Salehuddin Ahmed said there was no need of the new banks as the client has lost their confidence in the banks.
“As we know most of the new banks were approved based on political influence. Most of these banks are facing capital shortfall. Merger is not a solution at all. However, the banks should focus on reconstructing their capital base,” Salehuddin Ahmed said while talking to the daily sun on Saturday.
The eminent banker also noted that there are many efficient bankers in the country, but they can’t work independently as the banks’ boards are formed with people having power rather than financial literacy.
A recent study of BIBM shows that around 73 percent bankers think corporate governance is being affected in banks as the directors are involved in issuing big loans to serve their own interest.
The rise in non-performing loans at the banks, especially the Farmers Bank and NRB Commercial Bank is alarming, according to BIBM.
“Bangladesh Bank found several irregularities in loan approval and disbursement of FBL in last four years. This is really disappointing for the entire economy,” BIBM said in a report.
Earlier in October, the Parliamentary Standing Committee on the Finance Ministry expressed grave concern over the fast deteriorating financial health of Farmers Bank and NRB Commercial (NRBC) Bank and asked Bangladesh Bank (BB) to initiate a probe into the banks’ financial irregularities and corruption afresh.
The net loss of the bank stood at Tk 13.11 crore as of June 2017 and 28 out of its total 54 branches are incurring losses. The central has so far conducted 19 inspections on Farmers Bank.
The BB inspection found that the NRBC former MD Mujibur was involved in disbursing loans worth over Tk 700 crore violating the credit norms.
The bank granted a loan of Tk 140 crores to AG Agro, a concern of Shahidul’s Ahsan Group in 2013, against a collateral of only Tk 3.91 crore.
Centre for Policy Dialogue (CPD) distinguished fellow Prof Mustafizur Rahman said the banks should identify their internal problems and the central bank has the responsibly to support them.
“The banks should troubleshoot the issues on a regular basis. No outsider can solve the internal problems of a bank. The central bank has the responsibility to strengthen its supervision to help thwart rise in non-performing loans, capital shortfall and others errors,” Mustafizur Rahman said while talking to the daily sun.
Prof Rahman also recommended for an independent commission to resolve such crisis in the financial sector.