The new loan classification and provisioning rules of the Bangladesh Bank may give rise to default loans in the short-term, but will ultimately reduce the number of wilful defaulters and benefit both banks and borrowers, according to a BB study.

The central bank in the study said, if the rules are followed strictly, the amount of default loans as well as the banks' insolvency will fall in the long run.

The study found that the amount of default loans may increase by only 2.38 percent over the existing amount under the new rules.

On March 31, the total default loans in the banking sector stood at 6.57 percent of their outstanding loans. The percentage could be 8.95 percent on the same day if the amount was calculated under the new rules, the BB found in the study.

The central bank presented the study report to the heads of credit departments of all banks yesterday.

The BB also organised a workshop at its head office where its Deputy General Manager Anwarul Islam showed the study results through a presentation.

BB Deputy Governor SK Sur Chowdhury at the workshop said some influential borrowers have repeatedly got their huge amount of default loans rescheduled.

The workshop was organised to remove misunderstandings created among the bankers regarding the new decision.

the new policy does not provide scope for rescheduling loans for more than three times, new entrepreneurs will get more access to loans and the banks will also overcome their liquidity crisis, Chowdhury said.

Islam said the new rules were issued to ensure accurate asset valuation in financial reporting and maintain the appropriate asset quality of banks in the changing global economic environment.

According to the changes in rules the central bank brought in June, if a loan remains in default for three months, it would be classified as substandard.

It means the borrower will not face any difficulty in getting new loans but the bank will have to keep 20 percent provisioning of the sub-standard loan.

Also, in line with the new rules, no loan can be rescheduled for more than three times.

After a new circular was issued in this regard, both business community and banks have requested the central bank to reconsider the decision.

However, BB officials said the impact of the new decision would be minimal.

According to Islam, the new decision will ensure better recognition of losses at banks, proper calculation of their income, and avoidance of overstatement of capital.

He also said the new rules will increase the banks' resilience, ensure better management efficiency, and bring transparency in financial reporting and discipline in the industry.

Islam said good borrowers will not face any adverse impact; instead, credit flow will increase to new entrepreneurs and productive sectors.

The number of habitual defaulters will fall and depositors' interest will be better protected, he said.

The Daily Star/Bangladesh/ 17th July 2012

Banks and non-bank financial institutions will not be allowed to spend more than Tk 35 lakh to buy cars and more than Tk 50 lakh to buy Jeeps from its own funds, the central bank said yesterday.

However, they can spend up to Tk 85 lakh if they buy Jeeps from the state-run Progoti Industries Ltd, the state-owned automobiles assembly factory, according to a notice by Bangladesh Bank.

The decision, which aims to cut extravagant spending on cars, has already come into effect.

The Daily Star/Bangladesh/ 17th July 2012

Standard Chartered Bank as part of its continuous effort to introduce the emerging markets to its global footprints, hosted a seminar on “Financing and Investment Opportunities in Bangladesh” on June 20 at hotel Taj Mahal Palace in Mumbai. The purpose was to showcase Bangladesh economy and its investment potentials to Indian commercial banks and other International Institutional investors, development and financial Institutions.

The session was inaugurated by Charles Corbett, regional head, Capital Markets, South Asia, Standard Chartered Bank.

The keynote address was made by T.C.A. Ranganathan, chairman and managing director, Exim Bank of India. Various aspects of Bangladesh economy were presented by David Rasquinha, executive director, Exim Bank of India and Samiran Chakraborty, head of Research, India, Standard Chartered Bank.

Top officials of the leading corporate houses from Bangladesh were present in the seminar. The prospective investors who participated in the event were multilaterals, public sector banks, private banks and various foreign banks.

The seminar consisted of two panels. The first panel discussion on the topic of “Regulatory Framework for Promoting the Investment Climate in Bangladesh” was coordinated by Alamgir Morshed, head of Global Markets, Bangladesh, Standard Chartered Bank.

The second panel discussion was held on “Roadmap for Accessing International Financial Markets by Bangladeshi Corporates” and was coordinated by Nirukt Sapru, head, OCC Growth Markets, SEA and South Asia, Standard Chartered Bank.

The Daily Independent/Bangladesh/ 16th July 2012

Speakers at a seminar on Sunday observed that an equity and bond market can be an alternative way of financing that can reduce the existing unethical competition in the banking sector. “If government can create an equity and bond market, it would reduce the unethical competition to lend from banking sector,” said Prof Dr Shah Md. Ahsan Habib, director of BIBM (Training). He was speaking at a seminar on “Credit Operations in Banks” at Bangladesh Institute of Bank Management (BIBM).

The daylong programme was also addressed among others by Prof Dr Toufic Ahmad Chowdhury, director general of BIBM, Sk. Harun-ar-Rashid, senior associate professor, Quazi Golam Morshed Farooqi, faculty member, Atul Chandra Pandit, assistant professor of BIBM and Mohammed Mahfuzur Rahman, deputy general manager of Janata Bank Ltd.

Dr. Prashanta Kumar Banerjee, senior associate professor and director and team leader of review team presented a keynote paper at the seminar. Dr Prashanta said, “Credit and investment figure of scheduled bank was Tk 4,625.85 billion as of December 2011.” Of this amount, about 86.69 percent of advances of all the  banks were concentrated in Dhaka and Chittagong division in 2011. It means only 13.31 percent of the advances of all banks were made available to five other divisions, he pointed out.

“Such inequitable distribution of advances by the banks may create regional economic disparity,” he observed.

Dr. Shah Md. Ahsan Habib said the cost of raising funds for loans has increased substantially in the year 2011 and it forced banks to increase the interest rate on loans.

Talking to The Independent Dr. Shah said, slow recovery poised a serious problem to the banks in 2011.
He observed that slow recovery has been observed particularly in the real estate, RMG and commodity sector.

Habib also mentioned that primary dealer banks had been suffering the most because of buying more government securities and absence of the secondary market.

He said, “Financing against local LC, accommodation bill and indiscriminate extension of loan against trust receipt (LTR) facility resulted in fund diversion.”  

S.A. Chowdhury, managing director of Bangladesh Commerce Bank Ltd. expressed concern over increasing classified loans as the credit officers and managers were processing the bad loans. Chowdhury said,“To minimise the classified loan, banks are also rescheduling loan which failed to add  new customers.”  

Mahbubul Alam, managing director of Southeast Bank Ltd observed that Corporate Social Responsibility (CSR) practices by banks have become an integral part of business in recent years.

He said” The status of CSR has not been satisfactory due to lack of awareness, poor enforcement of existing laws and inadequate pressure from civil society and vested groups.”

On the question of alternative sectors of investment he mentioned solar energy, biogas plant, ETPs and energy efficient kilns could be new areas of investment.

It was told in the seminar that although the contribution of agriculture sector to GDP was almost 20 percent
but the flow of credit to this sector was only around 5.59 per cent in 2011.

The Daily Independent/Bangladesh/ 16th July 2012

Mutual Trust Bank Limited (MTB) recently opened a MTB Smart Banking (Kiosk) at Banasree, Rampura in Dhaka.

Md Nurul Kabir, General Secretary, Banasree Kallyan Samity inaugurated MTB's 2nd kiosk, as the chief guest, said a press release Sunday.

Quamrul Islam Chowdhury, Deputy Managing Director of MTB, local elite, leaders of the local business associations and people from different strata and other MTB senior officials also attended.

MTB Smart Banking Kiosk offers 24/7 ATMs, cash and cheque deposit machine along with bills payment facility, internet banking access and extended hour customer services from 9 am to 9 pm everyday, excluding government holidays.

The Daily Sun/Bangladesh/ 16th July 2012