Unhealthy competitions among banks regarding loan takeover have resulted in vulnerability in the banking industry that should be mitigated soon as most of the taken-over loans became defaulted, said experts at a roundtable discussion on Thursday.
The Bangladesh Institute of Bank Management organised the roundtable discussion on ‘Loan takeover in Bangladesh: is it a healthy practice?’ at its office premises in Dhaka.
Banking industry experts, regulators, academics, top officials of different banks and practitioners exchanged their views in the session.
They said due to ill competitions among banks regarding loan takeover, banks provide money to borrowers beyond the borrowers’ eligibility, which is sufficient enough to get the loans classified later.
Loan takeover or loan sales mean transferring loan of a client of one bank to another bank giving more facilities.
In most of the cases of loan takeover, it seems that bad intentions of the parties involved get priority because of inefficiency of the banks or their expectation of unethical benefits, they said.
Former Bangladesh Bank deputy governor Ibrahim Khaled, also a BIBM chair professor, said that pressure from the bank owners on the banks’ managements was the main reason for the malpractices.
Political and financial criminals are controlling the country’s bank sector, he said.
He said the managing directors of some banks had recently been removed as they opposed going with the owners’ unethical intentions.
‘We need to follow professional ethics and norms rather than separate guidelines as so many rules and regulations in the free market reduce capacity of the businesspeople and are not good enough for business,’ he said.
‘We should look after solutions to mitigating these unprofessional hindrances,’ he said.
He suggested that bankers should assess a number of financial issues before sanctioning any loan.
BIBM supernumerary professor Helal Ahmed Chowdhury said, ‘Banks should analyse the borrowing company’s business capacity, yearly turnover and its intentions behind transferring loans.’
Mohammed Sohail Mustafa, associate professor at the BIBM, presented the research paper where he mentioned ‘there are no guidelines on loan takeover in Bangladesh where 44 banks are involved in loan takeover practices’.
According to the research paper, 90 per cent of bankers believe that takeover loans would increase risks for the country’s banking sector, 40 per cent of them think that such loans have already created risks and 50 per cent of bankers said that takeover loans might create risks in near future.
The amount of loan takeover saw a downward trend, declining by 47 per cent in June 2017, whereas it had increased in December 2016 by 41 per cent as compared to June 2016.
Although the amount of taken-over loans is not huge as compared to the total exposure but ill practices might be capable to adversely impact all regular exposure of banks by the prevailing process of loan takeover, he said.
Moreover, due to lack of thorough appraisal and compromising banking norms, the taken-over loans may not perform desirably, he said.
To reap mutual benefits for the entire banking sector, bankers should motivate each other to avoid unhealthy competitions among them, he said in the research paper.
The BIBM research found that most of the taken-over loans failed to perform well in the long run, which was ultimately affecting the cash inflow of the bank concerned.
BIBM director general Toufic Ahmed Choudhury said that with the increased number of banks in the country, the competitions became fierce among the banks due to an absence of enough borrowers.
He also said that separate guidelines should be formulated as the free market ‘invisible hand’ was not working properly in the banking industry of the country.
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