Analysts say asset quality of state banks undermines industry

Sajjadur Rahman

A steady rate of economic growth -- on average 6.24 percent a year for the past one decade -- has helped Bangladesh raise its banking sector's assets faster than any other South Asian nations, bankers and analysts The total banking sector assets as a share of the country's gross domestic product (GDP) have also seen a dramatic rise -- from 50 percent in 2001 to 80 percent “Much of the credit for this goes to our entrepreneurs who have invested wisely in new mills, factories and also in the services sector,” Anis A Khan, managing director of Mutual Trust Bank, said.

Khan said banks and financial institutions have also expanded in terms of numbers, network, products and services, reaching huge swathes of the population.

London-based research firm Business Monitor International (BMI) found that total banking assets in Bangladesh witnessed a 19.1 percent compound average growth in the past five years followed by 18 percent in Sri Lanka, 17.2 percent in Pakistan and 16.7 percent in India.

At the end of 2013, assets of banks in Bangladesh stood at $107.1 billion compared to $88.8 billion in the previous year.

Bank assets are everything an individual bank owns -- loans and investments in stocks, bonds and treasury bills from which future paybacks are expected to occur. Loan quality and asset quality are the two terms with the same meaning.

Only the Indian banking assets as a share of its GDP are more (85 percent) than those in Bangladesh in the region, according to a recent report of the BMI.

For Pakistan and Sri Lanka, there was no change in their total banking assets relative to GDP, with both countries sitting at roughly 50 percent.

India is the leader in South Asian banking sector in terms of assets with more than $1,500 billion at the end of 2013, while Pakistan holds the second spot with $107.4 billion, up by only $300 million than that of Bangladesh. Banks in no other South Asian countries have even $40 billion worth of assets.

The BMI report forecast the total assets of Bangladeshi banks will surpass Pakistan by $3.5 billion to more than $125 billion at the end of this year.

Bankers and analysts attributed the asset growth to the steady economic growth of the country, expansion of financial institutions and entrepreneurs who have driven the demand for bank credit.

“Expansion of economic activities, from industries to SMEs, has helped us raise bank assets,” said Helal Ahmed Chowdhury, managing director of Pubali Bank that has around $2.5 billion worth of assets.

Shafiqul Alam, managing director of Jamuna Bank, said robust and consistent economic growth at more than 6 percent for the past one decade has pushed up the demand for credit in the country.

Muklesur Rahman, managing director of NRB Bank, credited the private sector for this growth in bank assets.
Rahman said garments, textile, spinning and services are Bangladesh's key trade and manufacturing sectors that are growing despite political hazards.

Monzur Hossain, a research fellow at Bangladesh Institute of Development Studies, said the rise in bank assets is consistent with the steady economic “It's a good sign for the economy. The private sector that drives the demand for credit has fared very well,” Hossain said.

Bankers also praised the central bank, particularly its governor, for its efforts to deepen financial inclusion, especially through agriculture, small and medium enterprises, women entrepreneurship and green banking that have acted as a fillip to the growth in bank assets.

On the quality of the assets, bankers and analysts have agreed that the condition of assets in state-owned banks is not good. They said many of their loans will not return and will become bad assets.

“It (asset) is a bit camouflaged and doesn't reflect the actual position of the banks,” Alam of Jamuna Bank, said about the overall banking industry's assets.

But Khan of Mutual Trust Bank said one has to remember that Bangladesh is constantly ravaged by challenges, some natural and some manmade, which both the entrepreneurs and the workforce have to face and “This had a resultant effect on repayments of loans and other obligations to banks,” he said.