After independence of Bangladesh, there were only six nationalised banks and one specialised bank. The first private commercial bank came into being in 1982. Before the private banks entered the scene, the people of Bangladesh, who were directly or loosely related with the banking sector, were not in a position to realise the benefits offered by real banking. As AB Bank Limited, the first-ever private commercial bank in Bangladesh, began operating in the market, the banking scenario took a new shape. The nationalised commercial banks (NCBs) witnessed a new era of competition in course of time.

The central bank took initiatives to streamline the assets of the banks according to their quality through issuing Banking Regulation and Policy Department (BRPD) circular No-14 regarding loan classifications and provisioning. It was the first fruitful initiative taken by the Bangladesh Bank (BB). If the central bank of Bangladesh had not taken this remarkable initiative, the banking sector would have been affected by repeated volatilities.

Ethical commitment to the stakeholders, including the depositors, is the most vital necessity for bankers. Since independence no research seems to have been undertaken by the any quarter for finding out the real situation or to decide how many banks are needed for the small economy of ours. We have nearly 48 banks now, and are going to launch nine more banks. Many are not able to understand the rationality behind allowing this huge number of banks to operate.

Banks should set their annual business target on the basis of the current market situation, GDP (gross domestic product) growth, condition of broad money, status of public borrowing, congenial environment for investment, law and order etc. Emotional as well as irrational attitude that is at work behind setting the annual budget forces the bank management to get the allocated budget at any cost. In the process, regulatory requirements are sometimes ignored. Bankers spend a substantial portion of their time on activities related to management of non-performing loans and unnecessary movements in the name of hunting for new clients for financing. For meeting the managements' desire in terms of achieving profit target, the bankers have to finance many clients who have no capacity to take the burden of over-financing of the banks. Due to overtrading privilege, the borrowing clients naturally divert funds to the non-productive sector or non-performing businesses.

Bankers should be very cautious in lending to those who are enjoying facilities from more than one bank. Discreet steps of caution have to be taken by the bankers in assessing whether or not the borrowers have the capability to take further financing. In the context of big corporate clients, the culture of 'name-banking' has been on the increase day by day. This spree of financing, mostly known as overtrade, is leading to unhealthy competition in the market. A centralised and 24/7 type of CIB (Credit Information Bureau) data base has become a crying need of the Bangladesh financial sector. For clamping down on the unscrupulous businessmen who are constantly deceiving the bank managements with the help of some dishonest bankers and taking away public money, Bangladesh Bank should come forward to mitigate the problem with the time-befitting tools without further delay.

Banks should be very calculative and methodical at the time of lending funds out of the public money, for which the depositors keep their trust in the lending banks. Proper selection of borrowers should be the first and foremost priority for the bankers and the virtue of trustworthiness must not be forgotten by the bankers at any point of time.

Bankers should be very much aware of the quality of the securities kept against lending. According to a senior banker of the country, bankers should use 'science' first in the selection of borrowers and then apply 'arts' during the monitoring period. Banks are struggling hard in Bangladesh due mainly to improper management of portfolio. Lack of monitoring over the portfolio has caused fund-diversion from working capital to the long-term capital investment such as purchase of land and investment in the shares of different companies through the stock market. The spree of land purchase by unscrupulous borrowers has led to the backlog in their portfolio and, ultimately, is making the assets of the banks non-performing and the bankers are counting huge costs.

In most cases, the borrowers breach the contract through loan against trust receipt (LATR) the banks offer to the trustworthy clients. One cannot understand why the loan against imported merchandise is past due over a long period of time-one year or more in place of three or four months-and why the bankers entertain further credits without adjustment of the previous series of long overdue ones. If the bankers keep the record of stock report through regular visit of merchandise, such chronic complexities could never have happened.

Bankers should not run after profit, profit will run after them if borrower selection is done through extensive evaluation process.

(The writer is Senior Executive Officer, Bank Asia Ltd, Anderkilla Branch, Chittagong.

News: The Daily Financial Express/Bangladesh/12-12-12