New banks are lending out heavily -- 70 to 80 percent of their total loans -- to corporate clients instead of small and medium enterprises and retail consumers, insiders and analysts said.

The risk is: if a big client fails to pay back in time, the bank may suffer as it may not be able to make adequate provision from its small profit.

“Directors want quick profits, which is very unlikely for a new bank,” said the chief executive of a new bank, seeking anonymity. “It takes at least three to five years to generate sustainable profits and pay dividends.” Nine new banks that came to the market amid political unrest in the second half of 2013 are struggling to do business at present, facing intense competition from 47 old banks in lending and attracting deposits.

Lending out is the biggest challenge for a new bank, as borrowers demand the lowest interest rate without considering the banks' cost of funds.

According to these banks, the cost of their funds is between 11 percent and 12 percent, which is well within a single digit for many old banks. In terms of lending, if a new bank offers a borrower 11 percent, an old bank offers 10.5 percent.

“Depositors have high expectations from us, while borrowers want the lowest rate in the market. We are in a double bind,” said Rafiqul Islam, managing director of South Bangla Agriculture and Commerce Bank (SBAC).

Moreover, businesses are passing bad times and it has become impossible to get a good client, who wants to set up new factories or expand the existing ones amid an ongoing anti-business climate, Islam added. SBAC has lent out Tk 1,363 crore in 2014, coming in third among the new banks, after Union Bank with Tk 2,828 crore and NRB Commercial Bank with Tk 1,441 crore.

SBAC booked Tk 32 crore in operating profit and the net profit would be less than Tk 20 crore, which is a tiny figure to pay dividends against Tk 400 crore in capital.

“We need more time, around two years, to pay dividends to our shareholders,” said the SBAC chief executive.

To make their directors happy, some banks are lending aggressively to corporate clients that may end up as bad loans.

Union, NRB Commercial, SBAC and NRB Global went for aggressive banking, their lending data shows.

“Around 80 percent of our loans have gone to corporate clients,” said an official of Union Bank. It is tough for a new bank to lend out Tk 100 crore, especially to small businesses, he said, adding that strict monitoring is also needed to recover the money from small borrowers.

Muklesur Rahman, managing director of NRB Bank, said, “We are doing progressive banking, not aggressive, to make us sustainable. We have to keep in mind that we do business with depositors' money.” NRB lent out Tk 620 crore until December 2014.

Modhumoti Bank looks more cautious among the nine entrants. It lent out only Tk 413 crore until the end of 2014.

Salehuddin Ahmed, a former central bank governor, said he had always opposed issuing licences to new banks during his tenure till May 2009 as the country and the economy do not need any new banks.

“Many of these new banks have no sustainable and long-term business vision. Many sponsors of these banks do not even understand the banking business,” Ahmed said.

“That's the reason why the directors of these new banks want profit in one or two years.”

New banks could create entrepreneurs by funding SMEs and other productive sectors, he said.