Bangladesh Bank Governor Atiur Rahman on Sunday expressed dissatisfaction over the credit scams revealed recently as he unveiled the latest financial stability report.

He accused some banks of not following the realistic application of the central bank guidelines that caused deterioration in classified loan status of the worst five banks.

“The overall banking sector remained stable,” he said, upon unveiling the Financial Stability Report 2012 at Bangladesh Bank headquarters in Dhaka.

Atiur said no disaster had taken place in the banking sector until now with no red flags popping up either. As a result, a base of historical stability had been established.

“We have to give highest priority to ensure the corporate governance of banks, including state-owned ones to maintain stability in the financial sector,” he said. “Bangladesh Bank issued a guideline detailing instructions regarding this, but the scenario of realistic application is not absolutely reassuring.”

To bring back a more assuring situation to establish corporate governance, member of directors in the banks’ boards needed appropriate attention, he said. Bangladesh Bank will provide all kinds of support in this regard.

“Sharp price correction in the stock market and several fund forgery has affected the banking sector negatively,” said Bangladesh Bank Deputy Governor SK Sur Chowdhury. In addition to classified loans being increased because of the central bank’s strengthened policy and aggressive lending tendency of the banks.

So central bank has planned to strengthen the supervision to restore discipline in this sector, he said.

According to the financial stability report, the classified loans of the banking sector recorded a moderate rise at end-December 2012 compared to end-December 2011, which could largely be attributed to the new stricter loan classification and provisioning regulations of the central bank.

Classified loan concentration ratios of the 5 worst banks and 10 worst banks were 62.7% and 73.2% respectively at end-December 2012. Almost two-thirds of the classified loans are concentrated in three state-owned commercial banks and two state-owned specialised development banks.

The classified loans in the state-owned commercial banks are higher due to lack of efficiency in fund management, extending obligatory financing towards social and economic priority sectors and politically motivated lending.

The non-performing loans to total loans ratio has increased to 10% in FY12 from 6.2% in FY11. More than two-thirds of the total non-performing loan of Tk285bn is bad or loss.