Bangladesh Bank on Monday asked the commercial banks not to concentrate their major banking exercise on large-scale industries owned by some corporate groups as such policy has already created a threat to the stability of the country’s financial sector.
The banks should avoid disbursing large amount of loans to a few sectors so that the corporate default culture would not grab the financial sector, BB governor Fazle Kabir said while unveiling the financial stability report for 2016 at the central bank headquarters in the capital.
He said, ‘The banks will have to avoid aggressive lending through opening new windows to expand their business. Aggressive lending will create a risk to the banking sector.’
The banks should focus on the SME sector to disburse loans as such initiative would help generate employment and create new entrepreneurs, he said.
Besides, the SME sector is a less risky sector considering the recovery trend of the loans than the large-scale industries, Kabir said.
According to the latest financial stability report, the banks disbursed Tk 1,58,950 crore as of December 2016, or 23.60 per cent of total outstanding loans of Tk 6,73,720 crore, to the trade and commerce sector (trade financing).
23.40 per cent of disbursed loans in the trade and commerce sector became non-performing loans.
The banks disbursed Tk 75,870 crore to the RMG sector of which 12.60 per cent entered into the defaulted zone.
BB deputy governor SK Sur Chowdhury said that the volume of the defaulted loans in the country was higher than that of the neighboring countries.
The classified loans continued to increase in recent period despite repeated attempts taken by the central bank to curb the trend.
The FSR report said only 10 banks including five state-owned banks held 66 per cent of the total defaulted loans.
The five state-owned banks are Sonali, Janata, Agrani, BASIC and Bangladesh Krishi Bank.
The rescheduled loans have created extra pressure to the banking system in recent times as these constitute a significant part of the banks’ total loans portfolio, the report said.
At the end of 2016, the loans that had been rescheduled for at least once, reached to 10.50 per cent of banks’ total outstanding loans of which 75.80 per cent were unclassified.
The banks rescheduled defaulted loans amounting to Tk 15,420 crore as of December 2016, which was Tk 19,140 crore in 2015 and Tk 12,350 crore in 2014.
Loan rescheduled in RMG and textile sector constituted the major segment (22.70 per cent) of the industry’s rescheduled loans as of December 2016.
The stress advances also increased to 17.20 per cent as of December 2016 from 16.10 per cent as of December 2015 which indicated a need for stronger risk management techniques for improvement in the overall asset quality of the banking system, the report said.
The stress advances cover defaulted loans and restructured and rescheduled loans.
The large industries held 33.80 per cent of the total stress advances which is the highest in the financial sector.
Association of Bankers, Bangladesh chairman Anis A Khan said that the banks would have to accumulate huge amount of capital by 2019 with a view to implementing the BASEL III guidelines.
‘Some banks are trying to sell subordinate bond raising their capital while many of them are now offering stock dividend instead of cash. The banks require more capital to fill up their Tier I’, Anis, also managing director of Mutual Trust Bank, said.
The stability report showed that the country’s banking sector was lagging behind those of the neighboring countries to maintain the capital adequacy ratio (CAR) against the risk-weighted assets.
As of December 2016, the CAR in Bangladesh stood at 10.80 per cent, 13.30 per cent in India, 16.20 per cent in Pakistan and 14.30 per cent in Sri Lanka.
The CAR indicates that the capital base of the neighboring countries’ banks is stronger than that of Bangladesh.
The CAR will decrease to 6.69 per cent in the banking sector if the top 10 largest borrowers become defaulters, the report said.
BB’s change management advisor Allah Malik Kazemi said that the banking sector would face crisis if the banks follow a reckless competition.
‘The banks should introduce new products like derivatives and pension fund, but the underdeveloped bond market has created an impediment in this regard’, he said.
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