Bangladesh Bank governor Fazle Kabir on Sunday said that excessive defaulted loans at the state-owned commercial banks had created a very alarming situation in the country’s banking sector as the non-performing loans in the six banks crossed 25 per cent of their total disbursed loans.
The ratio of defaulted loans to the total disbursed loans in the banking sector hovers at 10.34 per cent, which is also high considering the credit volume of the country’s banking sector, he said at the first quarterly luncheon meeting organised by the Metropolitan Chamber of Commerce and Industry at it auditorium in the capital.
Among the six state-owned banks, Kabir said, BASIC Bank and Bangladesh Development Bank were worst in terms of defaulted loan-disbursed credit ratio.
The four other SCBs are Sonali Bank, Janata Bank, Agrani Bank and Rupali Bank.
The BB governor, however, said that the classified loans in private and foreign commercial banks were comparatively lower than that in the SCBs.
The rising defaulted loans have also put an adverse impact on the rates of interest on lending, he said.
Kabir said banks set their interest rates calculating the provision against classified loans, cost of fund and considering their respective profit targets.
For this reason, banks will have to reduce their defaulted loans to decrease the rates of interest on lending, Kabir said.
He said that banks’ loans and advances were concentrated in a few big borrowers that was not good for the country’s economic activities.
For example, state-owned Janata Bank disbursed 25 per cent of its loans in favour of four big borrowers and 15 per cent of its loans to another five clients, meaning that the bank distributed 40 per cent of its loans to its nine large borrowers, he said.
The loans and advances of the SCBs are also concentrated in Dhaka and Chittagong cities as the local or principal offices of the banks disbursed significant amount of the credit, he said.
Kabir said that the banks should keep their attention to disbursing more loans to the SME (small and medium enterprises) sector.
He said 18 lakh young people entered in the job market each year, but only four lakh could manage job.
Banks should create entrepreneurs from the young people to solve the existing job crisis, he said.
He said that the inflow of remittance declined by more than 17 per cent in 2016 as the non-resident Bangladeshis chose illegal channels to send their money.
The central bank has recently taken initiative to prevent money transfer through illegal channels, he said.
MCCI president Nihad Kabir presented the keynote paper at the meeting.
She said that the rising volume of NPL of banks was a matter of great concern for all, as the ratio of defaulted loans to the disbursed loans had gradually been growing.
She proposed that the central bank strengthen its vigilance, enhance the level of efficiency in lending operations of banks, and improve the risk management of the banks to contain the ever-increasing volume of NPLs.
Some of the SMEs are still being charged 14 per cent interest rate by banks, which is not desirable for their sustainability, given the country’s current buoyant macroeconomic scenario including the low inflation rate, she said.
Nihad said single-digit interest rate for the SMEs, like the other sectors, would considerably boost the economy.
A 20 per cent source tax is imposed on remittance of foreign sales agent commission and on remittances against acquisition of foreign technical know-how or royalty payment, she said.
The income tax ordinance disallows expenditure on such foreign technical know-how or royalty payments, if such payments exceed 8 per cent of the net profit disclosed in the statements of the accounts, she said.
These two provisions are a major deterrent to acquisition of new technology and know-how that can help Bangladesh move up the value chain and become more competitive in the international market place, she said.
She said that the regulators concerned should address the issues.
Touching upon the issues, the BB governor said that the central bank had recently taken a number of initiatives to liberalise the country’s foreign exchange regime.
The BB will take more measures in this regard in the coming days, he said.
Mutual Trust Bank managing director Anis A Khan also spoke at the meeting.
The ratio of defaulted loans to the total disbursed loans in the banking sector hovers at 10.34 per cent, which is also high considering the credit volume of the country’s banking sector, he said at the first quarterly luncheon meeting organised by the Metropolitan Chamber of Commerce and Industry at it auditorium in the capital.
Among the six state-owned banks, Kabir said, BASIC Bank and Bangladesh Development Bank were worst in terms of defaulted loan-disbursed credit ratio.
The four other SCBs are Sonali Bank, Janata Bank, Agrani Bank and Rupali Bank.
The BB governor, however, said that the classified loans in private and foreign commercial banks were comparatively lower than that in the SCBs.
The rising defaulted loans have also put an adverse impact on the rates of interest on lending, he said.
Kabir said banks set their interest rates calculating the provision against classified loans, cost of fund and considering their respective profit targets.
For this reason, banks will have to reduce their defaulted loans to decrease the rates of interest on lending, Kabir said.
He said that banks’ loans and advances were concentrated in a few big borrowers that was not good for the country’s economic activities.
For example, state-owned Janata Bank disbursed 25 per cent of its loans in favour of four big borrowers and 15 per cent of its loans to another five clients, meaning that the bank distributed 40 per cent of its loans to its nine large borrowers, he said.
The loans and advances of the SCBs are also concentrated in Dhaka and Chittagong cities as the local or principal offices of the banks disbursed significant amount of the credit, he said.
Kabir said that the banks should keep their attention to disbursing more loans to the SME (small and medium enterprises) sector.
He said 18 lakh young people entered in the job market each year, but only four lakh could manage job.
Banks should create entrepreneurs from the young people to solve the existing job crisis, he said.
He said that the inflow of remittance declined by more than 17 per cent in 2016 as the non-resident Bangladeshis chose illegal channels to send their money.
The central bank has recently taken initiative to prevent money transfer through illegal channels, he said.
MCCI president Nihad Kabir presented the keynote paper at the meeting.
She said that the rising volume of NPL of banks was a matter of great concern for all, as the ratio of defaulted loans to the disbursed loans had gradually been growing.
She proposed that the central bank strengthen its vigilance, enhance the level of efficiency in lending operations of banks, and improve the risk management of the banks to contain the ever-increasing volume of NPLs.
Some of the SMEs are still being charged 14 per cent interest rate by banks, which is not desirable for their sustainability, given the country’s current buoyant macroeconomic scenario including the low inflation rate, she said.
Nihad said single-digit interest rate for the SMEs, like the other sectors, would considerably boost the economy.
A 20 per cent source tax is imposed on remittance of foreign sales agent commission and on remittances against acquisition of foreign technical know-how or royalty payment, she said.
The income tax ordinance disallows expenditure on such foreign technical know-how or royalty payments, if such payments exceed 8 per cent of the net profit disclosed in the statements of the accounts, she said.
These two provisions are a major deterrent to acquisition of new technology and know-how that can help Bangladesh move up the value chain and become more competitive in the international market place, she said.
She said that the regulators concerned should address the issues.
Touching upon the issues, the BB governor said that the central bank had recently taken a number of initiatives to liberalise the country’s foreign exchange regime.
The BB will take more measures in this regard in the coming days, he said.
Mutual Trust Bank managing director Anis A Khan also spoke at the meeting.
Source: New Age