Bad loans make banking sector’s condition worse

BAD loans in the country’s banking system grew by 26.39 per cent in 2018, much higher than 19.51 per cent growth in 2017. Non-performing loans in the banking sector increased by Tk 19,608.4 crore to Tk 93,911.4 crore on December 31, 2018 from Tk 74,303 crore at the end of December 2017. As of December 31, 2018, such loans constituted 10.30 per cent of the total outstanding loans in the banking system while the figure was 9.31 per cent a year ago. Defaulted loans in the private and state-owned commercial banks rose by 30 per cent during the period, according to the Bangladesh Bank data disclosed on Tuesday.
The banking sector got mired in growing bad loan following detection of series of loan scams and embezzlements, including Hallmark Group scam in Sonali Bank, shady loan of BASIC Bank, AnonTex and Bismillah Group’s loan scams in Janata Bank and fund embezzlement in Famer’s Bank Limited and NRB Commercial Bank. Sonali failed to recover a single penny of Tk 3,500 crore. BASIC Bank is facing severe capital shortfall due to shady loans of Tk 6,000 crore. Janata Bank is facing loan scam of over Tk 5,000 crore given to AnonTex Group.
Providing credit facilities to influential people in violation of rules and regulations, and giving a clean chit to the perpetrators are the main causes of the continued rise in loan defaults. Another main reason is neither the central bank nor the Finance Ministry has taken any major step to contain such practices. Rather the authorities have allowed up to four family members to sit on a bank’s board. The overall tenure of directors has also been increased by allowing them to serve for nine years in three consecutive terms.
It’s needless to say that such practices only increase the power of those families who run banks and allow for the giving out of loans on personal and political motives, thus destroying the credibility of the bank with the public. We have seen this sort of thing happen with Farmer’s Bank which has defaulted loans of over 3000 crore.