Wakar Hasan has recently been promoted as the deputy managing director of IFIC Bank, the Bank said in a statement yesterday.

Prior to the promotion, he was the senior executive vice president and head of the credit risk management division.

He started his career with the bank in 1984 as a probationary officer, the statement added.

Hasan is a business postgraduate from the Institute of Business Administration of Dhaka University.

The Daily Star/Bangladesh/ 23th Dec 2011

It is known to all that majority of our population live in the rural areas. Their primary source of earning is from crop production and other farming related activities. Thus, attainment of real and sustainable GDP growth of the national economy warrants developing a vibrant rural economy to ensure a better quality of life for the rural people.

One of the key ways to bring momentum in the agriculture-based rural economy is to ensure enhancing the personal and collective capacity of the individual and family farmers to buy the basic inputs for agricultural production and other related activities.

With this goal in perspective, Bangladesh Bank in recent years has formulated an agriculture and rural lending policy and is pursuing the entire banking system to lend money to the farmers who are directly engaged in agricultural production as well as other rural activities for increasing their capacity to buy the necessary inputs. Until the current fiscal year bank lending to farmers was not compulsory for all the banks. Since government persuasion had failed in the past, regulatory measures instituting a compulsory lending policy to the agriculture sector by the banking system has been put in place from current fiscal.

As a result, the current fiscal's (FY 2011-12) agriculture/rural lending target of Bangladesh Bank through the banking system will have to be achieved by the individual banks to avoid facing regulatory consequences, which may also have a negative impact on the CAMEL rating of the banks failing to meet their individual targets. In the last fiscal (FY10-11), the agriculture/rural lending target through the banking system was about Tk 126.17 billion and 97 per cent of the target was achieved. It has been found that about one-third of this achieved target (loan disbursed amount) was delivered through bank-NGO/MFI linkage. During the current fiscal year, this linkage is bound to become more robust and, according to an estimate, a minimum of about 50 per cent of the agriculture lending target of Tk 138 billion by the banking sector will be disbursed through the NGO/MFI linkage.

A major part of the banking system is being primarily forced to lend in the agriculture sector through NGOs/MFIs due to the existence of a loophole in the agriculture/rural lending policy guidelines of Bangladesh Bank. There is no denial of the fact that the NGOs have been playing a pivotal role in poverty reduction in the rural areas. During the past three decades, owing largely to the collective and systemic efforts of the NGOs, the number of people living below the poverty line has been reduced from 60 per cent to about 29 per cent.

During the same period, agricultural lending by the banking system (excluding the state-owned commercial and specialised banks dedicated for this sector) as a whole was very negligible. Farmers seeking loans had to depend on the NGOs or micro-finance institutions (MFIs). Since there was no other alternative available, the farmers had no choice or option to negotiate the terms for their borrowed money. To be precise, it was a monopolistic system.

The same monopoly in the rural lending system is still somewhat in existence despite formulation of the agriculture/rural lending policy by Bangladesh Bank. The banking system is now obliged to lend to the agriculture sector. However, the banks are indirectly barred to reach the farmers directly due to the regulatory restriction of charging the maximum interest rate of 13 per cent, which does not cover the cost of reaching them. On the other hand, the same "cost of reaching" has been well-covered and taken care of by the regulatory body of the NGOs/ MFIs.

The banking system with its large branch network can reach the farmers directly at a lower cost than the NGOs/MFIs. Banks have their own funds from their depositors. The NGOs/MFIs have a nominal fund base of their own from token participation of the members that is almost negligible to their lending appetite. The cost of fund of the bank is much lower to that of the NGOs/MFIs. The NGOs/MFIs, after borrowing from the banking system, are adding a cost for their onward micro-lending to the interest rate, which is quite high and a big burden on the farmers.

If the regulator allows the banks to add the "cost of reaching" farmers directly, to the interest rates charged by them on agricultural loans, then a huge amount of money can be lent to the farmers at an interest rate much lower than that currently being charged by the NGOs/MFIs, which is as high as 27 per cent. This writer is not opposing the provision of the NGOs/MFIs provided by their regulatory body, taking into cognizance the need for close monitoring and regular follow-ups to ensure recovery of the loans as well as to ensure that the borrowed money has been used for the purpose it was lent.

If Bangladesh Bank allows the banking system to cover the cost of reaching the farmers directly, the banks will reduce their agriculture/rural lending through the NGOs/MFIs. Instead, they will directly offer loans to the farmers at a lower lending rate, say 20 per cent. Opening up of this alternative window for the farmers to borrow at a 7.0 per cent or so lower cost from the present 'no choice' environment will take them out of the historical suffocation of 'forced exploitation'. The farmers will have another door open before them to borrow at a lower cost and for this they will have an edge in hand to smartly negotiate with the other lenders to lower their interest rates. If this meaningful regulatory change comes into effect, a competitive agriculture and rural lending market will be created for the farmers, similar to the options available to the urban borrowers today. This will also help diffuse the regulatory discrimination that exists between the rural and urban borrowers in this regard.

The Financial Express/Bangladesh/ 22th Dec 2011

After years of sky-rocketing credit growth to finance development, Vietnam’s banking system is now weighed down by toxic loans that have forced the communist nation to launch tough reforms.

The Southeast Asian country’s financial sector consists of about a hundred banks—either state-owned, private or foreign bank branches. But most have only limited capital and many face a substantial shortfall of cash.
In the years to come, the whole set-up will have to change.

“There are too many small banks,” said Le Tham Duong, from the Banking University of Ho Chi Minh City. “The challenges are enormous.”

After a 14-fold increase in the amount of loans held by banks since 2000, reaching 244 per cent of gross domestic product in September 2011 according to the central bank, the system has woken up with a huge quantity of bad debts.

Many result from the inability of state-owned companies and banks to fully follow the market economy principles embraced by the Communist Party in the late 1990s.

The trend was further accelerated by the regime’s economic reforms in early 2010, when the government abandoned its sacred dogma of economic growth to tackle macroeconomic imbalances, particularly record inflation, still around 20 per cent.

Measures towards credit limitation via higher interest rates in particular have been taken, making it harder for indebted companies.

Official figures today show toxic loans represent about 3.2 per cent of all of those registered in the country.
But “they are increasing fast” and “could reach five per cent by the end of this year,” said Cao Si Kiem, Vice-President of the Consulting Committee for National Monetary Policy which advises the government.

Many experts distrust the figures, saying bad debts are badly underestimated in a country where opacity still dominates the corporate culture and where transparency of accounts, including the Central Bank, is mere wishful thinking.

Foreign observers suggest at least 10 per cent of banks’ assets could be bad loans.

The Daily Independent/Bangladesh/ 22th Dec 2011

Banks took a huge 489 billion euros at the European Central Bank’s first ever offering of three-year funding on Wednesday, raising hope a credit crunch can be avoided and that the money may be used to buy Italian and Spanish bonds. A total of 523 banks borrowed money at the tender with demand way above the 310 billion euros expected by traders polled by Reuters in the run-up to the operation.

The banks’ lunge for funding pushed the euro to a one-week high versus the dollar and sparked a rally in stocks.

The three-year loans are the ECB’s latest bold attempt to ease the euro zone’s troubles. It is the most the bank has ever pumped into the financial system, topping the near 450 billion it injected with its first one-year loans back in 2009.

Its hope is that the ultra-cheap and ultra-long funding will have a range of beneficial effects, including bolstering trust in banks, easing the threat of a credit crunch and tempting banks to buy Italian and Spanish bonds, thereby calming markets and easing the currency bloc’s sovereign debt crisis.

“The take-up was massive ... much higher than the expected 300 billion euros. Liquidity on the banking system has now increased considerably.” said Annalisa Piazza at Newedge Strategy, adding that the take-up probably came largely from banks in the euro zone’s debt-laden states.

“In a nutshell, the three-year auction can been considered as successful in terms of adding liquidity to the banking sector,” she said.

While an interbank lending crunch may have been avoided, it is much less certain banks will use the money to buy Italian and Spanish government debt, as French President Nicolas Sarkozy has urged, given the competing pressures on them to cut risk, rebuild capital and lend to business.

“While this might help to address recent signs of renewed tensions in credit markets and support bank lending, we remain skeptical of the idea that the operation will ease the sovereign debt crisis too as banks use the funds to purchase large volumes of peripheral government bonds,” said Jonathan Loynes, Chief European Economist at Capital Economics.

Given those doubts, most market experts say only more aggressive and direct buying of government bonds by the ECB will help ameliorate the crisis, something it is reluctant to do.

Banks switched 45.7 billion euros out of one-year loans taken from the ECB back in October. The impact on overall liquidity levels was also softened after banks scaled down their three-month borrowing from the ECB to 30 billion euros from 140 billion and almost halved their intake of one-week loans this week.

Rather than a simple flat rate, the 3-year funds were offered at an interest rate which will be the
average of ECB’s main interest rate over the next three years. That benchmark rate is, after a rate cut earlier this month, at a record low of 1.0 per cent.

For some banks the money could be more than 3 per centage points cheaper than they can get on the open market. As part of the deal, as well as being able to convert their one-year money to the new three-year loans, they will also be able to pay it back after just a year if they so wish.

One of the key factors boosting demand is that banks are now more reliant than ever on central bank funds. The ECB on Monday said, in its semi-annual Financial Stability Review, that this dependency could be difficult to cure.

French banks have almost quadrupled their intake of ECB money since June to 150 billion euros, while banks in Italy and Spain are each taking more than 100 billion euros.

ECB President Mario Draghi has been pressing banks to take the money since announcing the plans earlier this month.

He warned of a chance of a credit crunch on Monday and said that euro zone bond market pressure could rise to unprecedented levels early next year.

The Daily Independent/Bangladesh/ 22th Dec 2011

Islami Bank Bangladesh Limited (IBBL) opened its 264th branch at Trishal in Mymensingh.

Chairman of the Bank’s Executive Committee Eskander Ali Khan formally inaugurated the branch recently, said a press release.

Mayor of Trishal Municipality ABM Anisuzzaman and former director of the Bank Shamsul Huda, FCA were also present at the inaugural function chaired by Deputy Managing Director Engr Md Abul Bashar.

Eskandar Ali said IBBL offers all modern banking facilities including ATM booths across the country, thus contributing to national development. The bank also initiates social welfare activities for underprivileged people.

DMD said IBBL is not only discharging interest free banking but also working for implementing principles of Islamic economics.

The Daily Sun/Bangladesh/ 22th Dec 2011