Sinking new banks desperate for deposits

Sinking new banks desperate for deposits

If the new banks, especially the failing ones, want to come back to business, they have to practice inclusive banking, and other new types of banking, in which there is huge market space and possibility of success

A number of new banks are desperately striving to collect deposits by offering attractive rewards like jobs. But due to scams in some of these banks people have lost confidence in all of these financial institutions.

A public relations officer of a fourth generation public bank urged this correspondent to find any known person, who is interested in depositing Tk5 crore in his bank for which the bank in turn is ready to recruit two persons who recommend depositors as a reward against the deposit.

Visiting another bank, this correspondent talked with a cashier, who was given a target by his bank to collect Tk10 lakh deposit by March, though that is not among the cashier’s responsibilities.

According to sources, nine new banks — Meghna Bank, Midland Bank, Modhumoti Bank, NRB Bank, NRB Commercial Bank, NRB Global Bank, South Bangla Agriculture and Commerce Bank, The Farmers Bank and Union Bank — are suffering the most in collecting deposits.

These banks are facing problems due to scams in two of the fourth generation banks — The Farmers Bank and NRB Commercial Bank.

The Chairman of South Bangla Agriculture and Commerce (SBAC) Bank Ltd told the Dhaka Tribune: “The scam-hit banks are basically affected due to interference of board of directors over management.”

“What can we do if the bank [The Farmers Bank] has failed even after an educated and professional man like Mohiuddin Khan Alamgir is in its chair?”

The four-year-old bank already has a notorious reputation for borrowing from depositors and other banks at high rates without having the ability to repay them, according to the central bank inspection.

“We are the beneficiary of his doing. Truly, the new banks are now suffering for the bad name of the Farmers Bank,” said the SBAC Bank Chairman.

“When we are going for deposits, the depositors said, “You are new banks. You are not protecting our money. You can’t pay against the cheque.”

“So, for the wrongdoings of two to three banks, the whole private sector banks are suffering in collecting deposits, resulting in a liquidity crisis.”

“We are currently facing challenges to convince clients that all the banks are not bad. For example, our bank is doing good business and we are making profits capitalizing the deposits,” he added.

The crisis starts

In October 2017, the Parliamentary Standing Committee on Ministry of Finance notified Bangladesh Bank that The Farmers Bank Ltd is a “risk” for the financial sector.

After that both the general and organizational depositors started to withdraw their deposits from the bank. As the bank failed to repay the depositors it created a panic that put pressure on deposits of other banks.

Moreover, the scam of Tk701 crore in loan disbursement and conflict among the board of directors of the NRB Commercial Bank also fuelled the crisis.

Besides, the new advance-deposit ratio set by the central bank also pushes the banks into the crisis.

The latest scenario

The crisis that stemmed from Farmers Bank has already gripped most of the private sector banks. Currently around 30 banks are facing problems in collecting deposits, according to the bankers.

On the other hand, the banks are failing to get the desired deposits in spite of announcing a higher rate.

Wishing not to be named, managing directors of some banks said the people now think twice before depositing money in the banks.

In a recent development, the NRB Global Bank has failed to submit a cash reserve ratio (CRR) to Bangladesh Bank due to a funds crunch, and the bank is facing shortage of Tk200 crore every day since February 19 to maintain CRR.

The Bangladesh Bank has been imposing fines to the NBR Bank due to huge shortage in funds.

A high official of the NBR Bank seeking anonymity said: “We are facing trouble in collecting deposits due to the NRB Commercial Bank’s bad name. As three of the banks are with the name containing NRB, the clients think all the banks are the same.”

Why are the new banks failing?

A recent study by Bangladesh Institute of Bank Management (BIBM) on performance evaluation of the new commercial banks showed the nine banks are in aggressive expansion mode, putting their depositors’ money at risk.

Their non-performing loans (NPLs) rose considerably over the last two years due to irregularities, according to the study.

According to the Bangladesh Bank data, as of September 30, NPL of the new banks stood at Tk964 crore, whereas the Farmers Bank topped the list with Tk378 crore, followed by the NRB Commercial Bank and Meghna Bank.

Bangladesh Bank cannot even make the list of total classified loans as of December 2017, as Farmers Bank is not providing their data.

BIBM Director General (DG) Toufic Ahmad Choudhury said: “The new banks cannot do well for a number of reasons. Of them, the first one is there is no market space for the banks.”

He blamed the banks for not keeping their commitment of inclusive banking, SME banking, and rural banking for which they were given licence four years ago.

“Rather, the banks are involved in aggressive lending and risky loan takeover, which led to the current crisis,” Choudhury said.

The solution

The BIBM DG said: “If the new banks, especially the failing ones, want to come back to business, they have to practice inclusive banking, and other new types of banking, in which there is huge market space and possibility of success.”

Meanwhile, Farmers Bank has planned to make a comeback by changing its name and logo and the board has already been shuffled as well, according to bank sources.

Former Bangladesh Bank governor Dr Salehuddin Ahmed said the bank could fight back in the industry by changing its name. That might bring back the trust of the depositors.

“But the bank should focus on collecting NPLs, which could give it a quick recovery.”

He also called for ensuring good governance in the banks with a view to making their financial health strong and proper management.

Source: Dhaka Tribune


  1. How much of those loans went to political people and cronies, nobody seems to ask the question. All these new banks were licensed in a hurry by the current government and Mohiuddin Alamgir was an insider of the same party. Put two and two together, Mr. Muhith, if you have the guts.

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