Former Bangladesh Bank deputy governor Khondkar Ibrahim Khaled, in an interview with Shakhwat Hossain of New Age on Wednesday, expressed his concern over the possible dire consequences that the ailing banking sector would face following implementation of the proposed bailout package for large loan defaulters. Khaled, who once served as MD of Sonali, Agrani, Krishi and Pubali banks, also focused on the present and past performance of Bangladesh Bank and the rise of the powerful loan defaulters during the parley at his office at Segun Bagicha.
New Age: The government is set to announce a bailout package for loan defaulters after restructuring bad loan soon. How do you see it?
Ibrahim Khaled: Finance minister AHM Mustafa Kamal only hinted at the bailout package, but we have not heard anything substantial from Bangladesh Bank yet. Whatever it is, if the proposed bailout package is implemented it will upset the banking sector.
Already many bankers told me that they were in danger as most of the borrowers stopped debt servicing. The borrowers are arguing that if they became defaulters they would qualify for paying the loan at 9 per cent interest rate as opposed to the current rate of 12-13 per cent. It will be reversal of the existing rules and things will go beyond the control of the banks. The government might plunge into troubled water.
New Age: Tell us a little about the previous loan restructuring policy.
Ibrahim Khaled: In 2015, Bangladesh Bank, for the very first time, announced the large loan restructuring policy. Mainly, 11 large loan defaulters availed of the facility. One or two made down payment of nominal amount but other did not. Thus, the first restructuring scheme failed. The proposed second restructuring policy was mainly aimed at protecting the interest of chronic defaulters, many of whom were very powerful. But this initiative will also fail. Because, there is no guarantee that the chronic borrowers would not abuse the facility. The powerful loan defaulters hardly cared about the political government and some of them have already made it to the government’s policy making level. Still, it is good news that the finance minister was forced to increase the interest rate to 9 per cent, two notches above the previously declared 7 per cent, due to political intervention.
New Age: Will you explain the difference between chronic loan defaulters and simple loan defaulters?
Ibrahim Khaled: The amount of defaulted loans stood around one lakh crore after 2018. The chronic loan defaulters held roughly around Tk 15,000 crore. If we add the amount of bad loan held by wilful defaulters the sum will be around Tk 30,000 crore.
You see that Tk 70,000 crore held by borrowers who are basically businessmen and survive on the traditional bank-client relationship. They are not asking for the bailout package. They may not get its benefit. Only 30 per cent defaulters, who are in guise of businessmen, are pressing for the bailout package. These so-called businessmen are basically plunderers of public money. Giving them protection since they have assumed the identity of businessmen is totally unethical.
New Age: You say that the banks would be badly affected. How?
Ibrahim Khaled: I know many borrowers who can withstand problems like financial crisis. In fact, they are the real businessmen. As for these defaulters, many managing directors of the commercial banks have already expressed concerns that these borrowers stopped paying debt as they want to benefit from the proposed bailout package. If such benefits are allowed, the entire banking sector will be shaken. You see banks survive on borrowers, not on defaulters. The proposed bailout package would turn borrowers into defaulters. The bankers are really worried.
New Age: The country’s banking sector has long been facing problems and multilateral agencies have been ringing the warning bell.
Ibrahim Khaled: Both World Bank and Asian Development have highlighted poor state of the country’s banking sector. Their views are based on professionalism. From a professional perspective, a truth is always a truth and a lie is always a lie. In fact, there is no governance in the banking sector as well as accountability. Loan scams in a bank cannot be taken place without the involvement of a nexus of bankers and borrowers. When people were expecting that the perpetuators of loan scams would be brought to book, finance minister AHM Mustafa Kamal stated that no borrowers would be sent to jail. The statement by the finance minister would only encourage the dishonest borrowers and bankers in continuing with their ill motivated acts.
New Age: How will you describe the present and past performance of Bangladesh Bank as the regulator?
Ibrahim khaled: The central banks around the world protect the interest of small savers in commercial banks. During my stint with Bangladesh Bank as a deputy governor and Mohammed Farashuddin as the governor, we expelled a board of a bank led by a regional political chief of the then ruling party.
The government was not happy at all but we did not change our decision for we thought we were working in the interest of people. It seemed that at present, the national bank officials are afraid of taking any tough measures.
There are signs that they face resistance from the government. A recent instance from neighbouring country India showed that the central bank governor resigned as he was unwilling to carry out a government decision to lend money from foreign exchange reserve. Resignation is out of the question, most of the central bank officials even forgot how to protest nowadays.
New Age: Mustafa Kamal stated that he inherits the bailout package from his predecessor AMA Muhith.
Ibrahim Khaled: As far as I know this is not correct. The former finance minister was personally honest, although he failed miserably to keep in check the series of blunders in the banking sector. Mr Muhith appointed a committee that submitted the recommendations to Mr Mustafa Kamal. The committee finalised the proposals as per instructions from the present finance minister.
New Age: How do you evaluate the first three months of the present finance minister who is the country’s first businessman-turned-finance minister?
Ibrahim Khaled: We welcomed him as he is a chartered accountant and knows the nitty-gritty. But within a short span of time, we saw that he took the initiative to bailout dishonest businessmen — this has sent bad signals. Mr Mustafa Kamal’s statement in favour of not allowing further increase of defaulted loan should be seen as part of a conspiracy engineered at a meeting of the bankers. A powerful defaulter, during the meeting, decided that they would make such a policy so that there would be no defaulters. The same powerful defaulter, who still continues with this defaulted loan culture, does so by filing writs in courts.
New Age: Why the amount of default loan is much higher in state-owned banks than in private commercial banks?
Ibrahim Khaled: Sections 56 and 47 of the Bank Company Act allows Bangladesh Bank to take action against errant bankers. But there are restrictions to apply those on the state-owned banks. That is why the position of state-owned banks is much more vulnerable than the private banks. Besides, the unethical practices and the degree influences by ruling party politicians on the state-owned banks are much higher.
New Age: Has the power of the central bank been curtailed as Financial Institutions Division is preparing the bailout package?
Ibrahim Khaled: Bangladesh Bank is not allowed to exercise its power. On the other hand, the finance minister blamed his ministry for the bad loan. Actually, the finance minister and his advisers have already decided to bail out the chronic defaulters. How could the financial institutions division officials foresee the plan forged out by the finance minister? The FID officials were asked to prepare the package. So the finance minister will fully be responsible for it.
New Age: There is a saying that loan scams in a developing country like Bangladesh is a normal phenomenon.
Ibrahim Khaled: This is completely illogical. Although such things happened in the US about 200 years ago where the outlaws migrating from the Europe were involved, we did not hear about loan scams in Denmark, Sweden, the UK and even Germany. The US should not be a model for us and our banking sector should follow the model European had set.
New Age: The country’s GDP growth is high but inequality is also increasing. Why?
Ibrahim Khaled: According to the household income and expenditure survey 2016, 95 per cent of the country’s economic gain does not reach 95 per cent of the country’s population. Vested interests within the government are mainly benefited from the economic gain. The government is not so powerful politically to start crackdown on loan defaulters and big tax evaders. People should come forward to free the government from the clutches of the vested interests and check the growing inequality. Besides, boost for small and medium entrepreneurs would help in reducing inequality which is inching towards the danger level of 0.50 per cent, from the current 0.48, as per the Gini index.
New Age: Do you see any change in the investment scenario after the last general election?
Ibrahim Khaled: I don’t know the reason clearly but there is a lack of confidence among businessmen regarding new investment.
New Age: Do you think that the bank owners are always benefitted?
Ibrahim Khaled: The government amended the previous act and allowed four members of a family to sit as directors on the board of any private bank. This is totally unethical as people’s interest is undermined by family interest. Such a decision is not acceptable from a democratic government.
The government also met the bakers demand by lowering cash reserve ratio. In return they lent a deaf ear to the government recommendation to bring down the interest rate of lending at single digit. The central bank governors never meet with private bank officials in others countries, but our current central bank governor sat at a meeting with the private bank owners at a private hotel.
New Age: What do you expect from the finance minister as he is set to announce the new budget?
Ibrahim Khaled: I have no expectation from the new budget as the finance minister’s working pattern seems obscure. Besides, he has already taken a position — he is on the side of the defaulters.
New Age: The finance minister announced that special audit would be lunched to access the loan defaulters. Would you clarify tell what that is?
Ibrahim Khaled: Every bank is audited by hired chartered accountant at least once a year. There is also internal auditor in addition to commercial audit and audit by central bank. I don’t understand the necessity of special audit. Critics are saying that the government might provide loan restructuring facility to the businessmen who are cooperative with the government with the help of the special audit. The finance minister’s statement —good borrowers will get benefit and bad borrowers will not — qualifies the arrangement of the special audit.
New Age: What will be the consequence of such special audit?
Ibrahim Khaled: Once the chartered accountants are appointed to determine the loan defaulters, the traditional banker-client relationship will falter. The chartered accountants have no capacity to judge a borrower other than indentifying mistakes and errors in ledgers. In that case, the banker-client relationship would not exist anymore. The banks will suffer dangerously.
New Age: Say something positive about the banking sector?
Ibrahim Khaled : There is nothing positive about the banking sector. Only positive thing is that technological development has made things easier for the customers — people can now submit and withdraw cash from any branch.
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