The central bank has refuted the concerns of the banking sector over a jump in non-performing loans (NPL) due to enforcement of the new rules on classification, provisioning and rescheduling of loans.

“NPL may go up to 8.5 percent from around 6.5 percent now due to the new loan rules,” SK Sur Chowdhury, deputy governor, told The Daily Star, quoting an impact assessment study on the new rules.

Bangladesh Bank (BB) carried out the study following bankers' concern that the banking industry would negatively be affected by the new rules that became effective from July 1.

Under the new provisions, an ongoing loan operation will be classified in the event of non-repayment of any installment within three months instead of earlier-fixed six months.

The base for provisioning has been set at a minimum level of 20 percent of the outstanding balance of the credits, while strictly limiting the rescheduling facility of any default loan, up to three times.

According to new rules, non-repayment period against a term-loan for more than two months will be treated as a "specially mentioned account" and the non-repayment period between 3-6 months will be classified as substandard. If the non-repayment period is more than six months, it will be treated as default loan.

The Association of Bankers Bangladesh, a forum of chief executive officers, requested the BB to extend the deadline for the implementation of its new instructions on loan classification and provisioning up to January 1, 2014, instead of July 1.

Otherwise, the bankers said the NPL would jump in the next quarter. Some top bankers said the NPL would double or more due to the new rules.

Not only bankers, manufacturers and exporters also expressed their concern saying that the new loan rules would hurt their industries. But the central bank does not agree with the bankers with their concern.

“Banking industry may face trouble for the time being, but in the long run it will establish credit discipline,” said the BB deputy governor.

Chowdhury said some people in Bangladesh take loans from banks with an intention not to pay it. These borrowers get defaulted and reschedule their loans to get new loans, he said.

“We want to stop this bad intention of borrowers,” he said.

The Daily Star/Bangladesh/ 25th July 2012

The agriculture sector contributes more than 20 percent to Bangladesh's gross domestic product.

Bangladesh Bank (BB) yesterday said banks that fail to disburse targeted farm loans would be penalised.

Bankers also demand an impact assessment study against their farm loans to the economy.

“We will cut 3 percent of undisbursed farm loans from the respective banks' accounts,” BB Governor Dr Atiur Rahman told top bankers at the launch of the Agriculture and Rural Credit Policy and Programme for fiscal 2012-13 at the bank's office.

If a bank fails to disburse Tk 20 crore out of its annual target of Tk 100 crore, the BB will cut Tk 60 lakh (Tk 3 lakh per Tk 1 crore) from the bank's accounts with it. The BB introduced the measure last year and 13 banks failed to disburse their targeted loans.

These banks requested the governor to reconsider the punishment and vowed not to repeat the failure.

Rejecting the bankers' requests, Atiur said: “We should maintain it… After all, non-compliance has a cost.”

The central bank has set the farm loan disbursement target for all the 47 banks operating in Bangladesh at Tk 14,130 crore for fiscal 2012-13, up by only 2.39 percent from the previous year.

All the banks collectively disbursed Tk 13,137 crore or 95 percent of the target at Tk 13,800 crore in farm loans by June of fiscal 2011-2012, according to the BB.

“The punishment measure of keeping 3 percent of non-disbursed loans will be maintained to keep pressure on the banks,” said SK Sur Chowdhury, deputy governor, who briefed the media after the meeting.

Chowdhury said this year's loan disbursement target was set in line with the GDP (gross domestic product) growth rate. He said the meeting also discussed priority and new areas for farm loans.

He said private and foreign commercial banks that were reluctant to given farm loans a few years ago have performed relatively better in 2011-12 than the state-owned banks.

“Many private banks disbursed 100 percent of their targeted loans,” he said. Foreign banks are also coming forward despite limited branch network, he added.

The farm sector plays a key role in Bangladesh's economic development as it contributes more than 20 percent of GDP. On an average, the country's GDP growth rate has been 6.35 percent in the past three years.

After Rahman became the governor of the central bank in May 2009, he kept pressing the banks to go to rural areas with funds. Rahman also introduced several refinance schemes, including cultivation of spices and lending to sharecroppers, to encourage the banks in this regard.

“Agriculture plays a significant role in creating domestic demand. A good harvest also helps contain food inflation,” said Rahman.

The governor urged the private banks to open accounts for the poor people.

Responding to the central bank's measures, the bankers said they want to see how their loans impact the rural people.

“We have requested the central bank to carry out an impact assessment study on our farm loans in the economy,” said Nurul Amin, managing director of NCC Bank and chairman of Association of Bankers Bangladesh.

The Daily Star/Bangladesh/ 25th July 2012

Finance Minister AMA Muhith, seen at a seminar on ‘Depositors’ Safety Fund’ at CIRDAP auditorium in Dhaka.

Finance Minister AMA Muhith Sunday underscored wider insurance coverage for the bank depositors in order to increase savings by the people.

Currently, an insurance of Tk 100,000 exists in the country for the bank depositors.

“The amount is still too insignificant to protect a depositor when the bank becomes unable to pay its debts,” said finance minister at a seminar on ‘Depositors’ Safety Fund’ at CIRDAP auditorium in the city.

He said it is high time to increase insurance coverage to a bigger amount.

Microcredit Regulatory Authority (MRA) organised the function.

MRA has undertaken an initiative to raise a Tk 300 million depositors’ safety fund for micro-finance institutions (MFIs).

The borrower-cum-depositors of 517 registered MFIs across the country can benefit from the fund.

“Though in late, it’s a good initiative,” AMA Muhith said.

Bangladesh Bank Governor Dr Atiur Rahman said the MFIs have total deposit of Tk 300 billion at present.

They are operating under MRA, Grameen Bank, BRAC and PKSF.

“We must make it sure that the depositors’ money is secured,” Dr Rahman said.

MRA has proposed a provision of providing maximum Tk 3,500 to a MFI depositor as insurance coverage.

A recent MRA study revealed that over 80 percent of the MFI depositors keep a deposit of around Tk 3,500.

Of the fund, Tk 250 million will come from the MFIs’ premium and investments while the rest Tk 50 million will be collected from the government sectors.

“We need a ‘seed fund’ for a start now. Gradually, we will be able to broaden the fund to all MFIs’ deposits, if the government helps us,” said Khandakar Mujharul Haque, the executive vice-chairman of MRA.

The Daily Sun/Bangladesh/ 23th July 2012

Private banks that almost went out of the capital market at the end of 2010 have decided to come back as they found the present market is good for investments.

Four such banks have already announced that they would invest Tk 900 crore in next two months. Many banks are in the pipeline to announce their investment plans, bankers said.

“We believe institutional investments would stabilise the ailing market and bring back investors' confidence,” said SA Farooqui, managing director of Standard Bank.

Explaining Standard Bank's announcement to invest Tk 100 crore in two months, Farooqui said, “The market looks very lucrative for investment.”

Like Standard Bank, Pubali, EXIM and NCC have got a green light of their boards to invest Tk 500 crore, Tk 200 crore and Tk 100 crore respectively in two months.

“Other banks are also thinking to make a comeback,” said Farooqui.

The central bank also sees no problem with the banks' plans to invest depositors' money in the speculative market.

“Legally, a bank can invest 10 percent of its deposits in the stockmarket, but most of the banks now have it within 1-3 percent,” said SK Sur Chowdhury, deputy governor of the Bangladesh Bank (BB).

Though Bangladesh's stockmarket is retail-driven, institutions, especially banks, made hefty profits in 2009 and 2010 at the cost of these retail investments. At that time, according to BB reports, many banks invested up to 30 percent of their deposits in the stockmarket violating the law.

A huge flow of banks' money had fuelled the market and everyday transaction reached more than Tk 3,000 crore.

The benchmark DSE General Index soared to 8,918 points on December 5 2010, more than double compared to a year ago.

“Our board has approved Tk 500 crore to invest in the capital market. They are willing to boost the ailing market,” said Helal Ahmed Chowdhury, managing director of Pubali Bank.

Chowdhury said they would invest the money by complying with all regulatory requirements.

However, as listed companies, banks were bound to disclose the information on their investment plans to the SEC and the stock exchanges within 15 minutes of their respective board approvals. But in this case, this regulation was not followed.

The banks' plans about their investments in the stockmarket has already boosted the market as the retail investors think institutional investors have the capacity to bring back confidence in the market.

Investors, however, look cautious if the banks do not invest despite announcements through newspaper advertisements.

But the central bank said the banks cannot backtrack on their plan after making public announcements.

“Regulators -- the Securities and Exchange Commission and the BB -- can catch them (banks) if they don't invest after making the announcements,” said the BB deputy governor.

The Daily Star/Bangladesh/ 23th July 2012

 Without the board of directors’ approval, the management of Agrani Bank Ltd, a state-owned commercial bank, paid Tk 13.8 million as advertisement bills to a private TV channel.

Audit Inspection Report (AIR) of Bangladesh Bank recently found this ‘anomaly’.

The report said Agrani Bank management made a one-year deal with the channel to sponsor its ‘News Hour’ programme paying Tk 1.15 million per month including 15 percent value added tax.

According to AIR, Tk 13.8 million was paid between first of January and 17th of April this year. daily sun managed to obtain a copy of AIR.

The report identified such advertisement payments without board of directors’ approval as ‘financial irregularity’, recommending punitive actions against those involved.

The AIR said a private TV channel that broadcasts hourly news round-the-clock sought Agrani Bank’s sponsorship of the programme on 3rd August 2010. The sponsorship application was placed to the 194th meeting of the bank’s board on 3rd November same year.

But the board could not make any decision regarding it, the report added.

In the mean time, the public relations department of the bank gave a ‘Work Order (Advertisement/1000/2010)’ to the TV channel on 15th November 2010 under the managing director’s approval. In the approval paper, MD wrote that the board chairman had given verbal consent to the issue.

But the BB inspection report said according to the rules, such approval must be in written form.

When contacted Friday, Syed Abdul Hamid, MD of the bank, claimed that the entire process was done on prior written approval of the board chairman.

“Yes, we had written approval from the board chairman. But, the fact might be that our staff failed to show it to the BB inspection team,” he said.

The Daily Sun/Bangladesh/ 22th July 2012