Lower loan interest rates alone won't suffice, fixing law and order key to reviving investment
Addressing law-and-order issues is crucial for stabilising Bangladesh's economy and attracting investment, as rising bank interest rates and increasing utility costs have significantly affected investment, said MDs and chairmen of various banks during a roundtable discussion organised by The Business Standard at its office in the capital yesterday. Key excerpts from their remarks are presented below.
Loan classification must align with int'l standards, even if defaults rise: Salim RF Hussain
Selim RF Hussain
Managing Director, BRAC Bank
Loan classification should be fully aligned with international standards. Even if this leads to new defaults, banks must adhere to international procedures.
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The loans that would be considered defaults under the international classification system are already in default and have been swept under the carpet. They are now simply being brought to light.
Many borrowers in our country have no intention of repaying their loans. The tendency to repay loans has declined significantly since 2019. Due to Covid-19, they were granted a two-year grace period for repayment.
Our banking sector has improved significantly over the past six to seven months. The Bangladesh Bank is undertaking major initiatives by organising several task forces.
Some banks are undergoing audits with support from various foreign institutions. Additionally, the central bank is working to recover laundered money.
Over the past four to five years, the country has undergone complex regulatory changes, which have negatively impacted businesses. If these regulations had been adjusted collaboratively, all parties would have benefited.
We still perform many tasks that ultimately add no value. A managing director has to sign and send numerous reports to the central bank daily. These processes should be digitised.
Borrowers who struggled to open Tk100 account granted Tk300cr loan
MA Mannan
Chairman, First Security Islami Bank
When I joined Fast Security Islami Bank, I found that people who were unable to open an account with just Tk100 were still granted loans of Tk200-Tk300 crore, approved by the bank's officials. We need to address issues at all levels, including the bank's board.
We need to develop tools to standardise both the moral standards and practical skills of our bank's workforce.
Our bank has 100 accounts, with 80% of Fast Security Bank's loans concentrated in Chattogram, 19% in Dhaka, and only 1% distributed nationwide.
We must consider the uniqueness of our institutions. In the six months since I joined this bank, nearly 7 lakh new accounts have been created. With a strong board, we can bring significant changes to the currently weak bank.
I am the chairman of the Islamic Banks Consultative Forum, which includes around 40 institutions involved in Islamic banking. Of these, 10 are fully Islamic banks, and the remaining 30 are partially Islamic banks.
Until 2016, it was the fastest-growing bank in terms of contribution and size, according to the central bank's rankings. One of its key objectives is distributive justice – ensuring that wealth is not concentrated in the hands of a few but is instead distributed to the marginalised.
The core philosophy of Islami banking was to support the marginalised. Every country that adopted Islami banking approach benefited to that extent.
I served as the managing director of Islami Bank Bangladesh for a long time. This bank has become a reference for Islamic banking worldwide, followed by the Islamic Development Bank.
The bad loans hidden in our banks over the past seven months have now surfaced. Seven banks have weakened due to being controlled by a group, and this issue has come to light following the government's fall.
As a result, marginalised people have not benefited from these banks in the last seven months.
Islamic banks have been undermined at their core, failing to make the contributions they were meant to for the people. I prefer not to mention the name of the previous chairman of the bank I currently chair.
Law and order must be addressed to revive investment
Syed Mahbubur Rahman
Managing Director, Mutual Trust Bank
To stabilise Bangladesh's economy and revive investment, law-and-order issues must be addressed; otherwise, reducing loan interest rates won't attract investment.
The pressure on borrowers has risen due to higher bank interest rates and increasing utility costs. Meanwhile, private sector credit growth has slowed to just 7.28%, signalling a major investment crisis in the economy.
Economic activity is declining as imports of capital machinery have dropped significantly. Despite creating 20-22 lakh new jobs annually, capital imports have not seen a substantial increase.
The government must ensure certainty for investors. When investors feel secure, knowing their factories are safe and workers are protected from sudden disruptions, they will be more likely to invest.
The country's economy and banking system have slowed in recent years, and the liquidity crisis in banks, worsened by rising defaulted loans, may intensify.
By year-end, non-performing loans had surpassed 20%, with the Bangladesh Bank warning they could rise to nearly 35%. As a result, banks are struggling to repay loans, potentially leading to liquidity issues.
While the government relies heavily on debt, the tax-to-GDP ratio remains extremely low, far below global standards. It must focus on increasing this ratio.
Bangladesh's currency devaluation has been limited to 14% over the past ten years, while neighbouring countries like India have seen their rupee fluctuate between 45 and 75 to the dollar.
Under the previous government, banking sector supervision was weak, with some banks operating freely while others faced strict measures. However, the Bangladesh Bank is now working to strengthen regulation, and internal bank management is undergoing change.
With the country's total foreign debt exceeding $100 billion and limited servicing capacity, Bangladesh's banking sector may face a new crisis. Improving law and order is crucial for economic development and attracting foreign investment.
Our external position is strong, with significant remittances from expatriates and strong export earnings, resulting in a positive current account balance. Now, we need to focus on increasing capital machinery imports.
We want to appoint international law firm for stolen asset recovery
Sharif Zahir
Chairman, United Commercial Bank
When I became chairman of the bank in August last year, I encountered a situation marked by negative news and eroded customer confidence. We faced an advance-to-deposit ratio of 94%, and non-performing loans were not properly disclosed. The governor gave us the confidence and courage to take over the leadership of the bank.
We are essentially fighting against criminals, like all of us. India's NPL ratio is 2.5%, and even in Pakistan, it's 7.5%. They have made this sector autonomous and independent through regulation.
The governor has given us the courage to speak up. I believe we've worked hard for over six months. In February alone, we added nearly 100,000 new accounts and brought in Tk1,300 crore in deposits within just 25 days, which is a very positive sign for UCB.
We were the first bank to appoint five audit firms and completed the forensic audit within two months. We now have information on almost 85% of the loan portfolio. Whenever I need to reach out to investors or potential strategic partners, they have access to this data, and we're receiving a tremendous response.
As we gradually declare the NPLs, there will be challenges for the industry. My request to the governor is to grant us some time. For example, provisioning should be addressed over a period of three to five years. We can't solve this with our retained earnings or capital base under the current requirements.
Additionally, Bangladesh Bank's refinancing programmes are not allowed if NPLs rise, yet we rely heavily on such refinancing. We need to continue these programmes and seek some flexibility as we work to fix the bank.
The most important step in addressing the capital base is separating the ownership from the looters. This is crucial for all banks as we are facing significant problems due to this issue. We must ensure the ownership of the bank is clearly separated.
In October, I submitted a letter clearly indicating that there is excess ownership over 10% that needs to be immediately liquidated. The central bank can do this without going to court. We have also consulted with the attorney general's office and received clear guidelines on how this can be done.
The second problem we face is that many laws work against the borrower. The legal system allows us to approach the lower courts and file the appropriate cases on behalf of the borrowers.
In most of our cases, the ultimate beneficiaries are the directors. Therefore, any action we want to take against bank employees or directors must go through the SEC. However, the SEC is still not equipped to act quickly, and we require prompt action.
Our expectation is either to be allowed to take the matter to court ourselves, with the bank handling it, or for the SEC to be more proactive. The SEC should either share the information with the media or make it a public action, as we need to see tangible results.
One important point is that regarding the money that has gone abroad, the central bank has instructed us to wait. I believe the central bank intends to take control of it centrally.
However, I believe we have our own resources. If allowed, there are many international lawyers coming to the country who have indicated that funding is available for such legal systems to begin. Beyond the 10 or 11 families, there are many borrowers who have defaulted on over $100 million. With permission from the central bank, we can start engaging with these lawyers.
2 bureaucrats were appointed as governors, violating rules
Fahmida Khatun
Executive Director, Centre for Policy Dialogue
Due to political interference, the autonomy of the Bangladesh Bank has completely collapsed and needs to be restored. The Bangladesh Bank Amendment Act 2003 grants the central bank enough power for autonomy.
However, in the last three terms, politically aligned and loyal individuals have been appointed as governors. According to the central bank's policy, no former or current civil bureaucrat is eligible to be the governor, but this has been violated in the last two terms.
Many types of reforms are being implemented now, and alongside this, human resource and skill development are also needed. The Bangladesh Financial Intelligence Unit (BFIU) is doing a lot of good work; however, skilled human resources are essential for recovering stolen assets and non-performing loans (NPLs), merging weak banks, or taking any other necessary steps.
Our observation about the Financial Institutions Division (FID) is that there is dual administration taking place. If it is not closed, the central bank will not be able to work independently. It was closed once in 2010 and then reopened because the FID became a place for lobbying. Decisions about who will be the directors of a bank or who will be in management are made there. If the FID continues to exist, their surveillance over the central bank must be stopped.
The Criminal Investigation Department (CID) report on the money that was stolen from the central bank through cyberattacks has been postponed 80 times. Why is the report not being made public? It may be due to some kind of sensitivity. The decision-makers say that since the case is being conducted outside the country, if the information is leaked, the case will become weaker. However, we have not received any formal response from the CID or the government on this.
There is also a need to modernise or update the Money Laundering Court and the Bankruptcy Act. With elections coming up in a few months, if the political government does not have the will, this reform initiative will be left in the dust. If that happens, it will be very sad. So, the bottom line is that if we do not move forward with political will, we will not see the potential that the banking sector has.
CIB reports of MPs should be published every 6 months
Syed Mansur Mustafa
Managing Director, IFIC Bank
If our banking sector is to recover, political will is most needed. Currently, there is a tendency to waste time under the guise of reforms in some cases.
Many borrowers who have damaged the banking sector believe they will return through elections in a few days.
No matter how many laws are made, it is very difficult to implement them without political will. Now, many customers are waiting to clear their Credit Information Bureau (CIB) records with the Bangladesh Bank just before the elections. Then, after the elections, they will worsen their CIB records again and default on their loans.
I believe the CIB of lawmakers should be published every six months. One reason borrowers reschedule their loans is that they take a long grace period of one year, only to default again.
For the path to recovery, we must first restore customer confidence. After 5 August, many customers of our bank experienced a decline in their deposits, but we have regained that confidence. Our deposits have increased significantly.
Currently, we are stuck in terms of liquidity. Regarding recovery, I think the legal policy should be revised.
A judge sometimes postpones a case after hearing it for a few days, or the court may transfer it. At times, we see borrowers exploiting this. The case processes are delayed by continuously filing writ petitions through the courts.
Consumers have right to know about default loans
Sohail RK Hussain
Managing Director, Bank Asia
The default loans of many banks have increased significantly, which will undoubtedly impact the banking sector. However, customers also have the right to know information about the banks.
Customer confidence, stakeholder confidence, and correspondent bank confidence all depend on transparency.
NPL is a critical aspect of our process. We must transition to international standards as quickly as possible.
Banks operate on the principles of checks and balances: the board oversees management, and management oversees the board. In addition to this, auditors, rating agencies, and central bank supervision play key roles.
If we review our ten or twelve troubled banks, we will see a huge deficiency in governance. The first line of protection for our banks is management, and the law must be strengthened to provide protection to management.
We are very disappointed when we see the reports from rating agencies on weak banks. Their reports contain one set of information, but the reality is often different.
In the area of governance, the board composition, fitness, number of family members, tenure of board members, etc., should be reviewed by considering the preferred fitness test. There have been many changes in this area over the last seven or eight years.
The financial audit reporting by auditors should comply with international standards. The processes of those conducting audits in our country, as well as the processes of rating agencies, should be maintained to a high standard.
Banks should not be granted forbearance on capital and provision shortfalls
Ali Reza Iftekhar
Managing Director, Eastern Bank
Many banks have capital and provision shortfalls, and the central bank should not grant them forbearances that make these key indicators appear less deficient.
The Bangladesh Bank should set a recovery roadmap for banks with capital and provision shortfalls and give bank directors a specific timeframe for how they will build up capital.
Forbearance in banking refers to the modification or refinancing of a loan or debt security when a borrower is facing financial difficulties. It can be used as a crisis management tool.
Some banks have failed due to corporate governance issues and failures of the board of directors. Many bank boards of directors are unaware of their responsibilities.
If the board and management of a bank had fulfilled their responsibilities, the banks could have been saved.
It seems that some banks are trying very hard to overcome the liquidity crisis. I think it might take a long time. In this case, the central bank should consider what actions to take. However, the support we have provided to some banks has been very limited.
Bank directors' mindset needs to change
Mati ul Ahsan
Managing Director, Mercantile Bank
The Bangladesh Bank needs to give importance to asset management companies to recover distressed assets in the country's banking sector.
Currently, the amount of non-performing loans (NPLs) in our country is more than 20%. When the NPL of a bank increases, it creates problems with credit lines from banks abroad.
More defaulted loans may increase in the future. In that case, all our banks will need to work together to prevent issues with our credit lines.
If we face problems with credit lines, exports and imports will be severely hampered. However, the overall banking sector has been improving in the last six months. We need to place more emphasis on loan recovery.
Our bank directors need to change their mindset. One demands ownership of a bank by an investment of Tk1,000 crore, while the customers have assets worth Tk50,000 crore. Most of the investment there is from ordinary depositors. We need to move away from this mindset.
We, who give policies and guidelines, are part of the bank. In fact, depositors are the owners of the bank.
Customer confidence in banks has not declined overall
Mashrur Arefin
Managing Director, City Bank
Due to loan defaults and the liquidity crisis in many banks, customer confidence has been affected, resulting in very low deposit growth in the overall banking sector. However, good banks have experienced more than 30% deposit growth, indicating that customer confidence in these banks remains strong.
City Bank was once a weak bank, with two observers from the central bank sitting in the bank. At that time, I joined City Bank from a foreign bank in 2007. Since then, it has taken many years for the bank to recover. I believe even weak banks will take 7-15 years to recover.
The current situation of Islami Bank indicates that it will bounce back because it has a unique strength. I am also optimistic about the current board of UCB. However, the government can address this issue by merging many small banks.
Among the banks in the country, Exim and IFIC banks were performing well in the past. The government can take steps to rebuild them. However, I believe that to strengthen the weak banks, a plan should be developed on a bank-by-bank basis.
The audit of the weak banks has not been fully completed, which means the full extent of the looting from these banks cannot yet be revealed. However, I believe that telling the truth is essential, even if it may be difficult.
Most of the wounds inflicted on the banking sector in our country are in taka. As a result, the government will have to move forward under inflationary pressure. If most of it had been in dollars, it would have been even more difficult. Even so, it will take eight to ten years to overcome this problem.
When we joined City Bank in 2007, the capital was not even Tk1. Today, that bank has made a profit of Tk2,300 crore. This has been possible due to the support of the board and management.
Islami Bank opens 12.5 lakh new accounts in six months
Md Obayed Ullah Al Masud
Chairman, Islami Bank Bangladesh
The role of the governor and the central bank has been crucial in the turnaround of Islami Bank Bangladesh PLC. The biggest issue is public confidence.
In the last six months, 12.5 lakh new accounts have been opened at Islami Bank, new deposits worth Tk17,000 crore have been made, and profits have already been reported in the media.
We appointed four audit firms in the first meeting of the board formed after the government changeover in August last year, and we will receive the report by the 25th of this month. We have started many cases, but this is a time-consuming process.
I would say that just as it takes time to dock a big ship, it also takes time to manage a large bank.
