Irregularities, Political Influence, Nepotism During Past Govts Created Crisis in Banking Sector

Dhaka Bank Chairman and the Bangladesh Association of Banks (BAB) President Abdul Hai Sarker said it will take several years to overcome the crisis in Bangladesh’s banking sector caused by irregularities, political influence and nepotism during the previous interim government. 

Sarker said many first-, second- and third-generation banks were operating well, but some banks that were approved on political considerations were subsequently misused. The crisis created by such practices has now become the responsibility of the present government. He, however, said the current government has taken several positive measures to address the problems.

He said the banking sector was pushed into such a state of mismanagement during the interim government that it would take considerable time to recover.

“Many first-, second- and third-generation banks were operating well. Dhaka Bank also started its journey in 1995 and has continued to operate successfully ever since. The bank has not faced any major financial or liquidity crisis so far,” he said.

However, the bank’s non-performing loans (NPLs) increased at times, and it is still carrying provisions against those bad loans. As a result, a large portion of its current profits is being used to maintain provisions, he said.

Sarker said some banks were given licences during the Awami League government based on political considerations and nepotism rather than business prospects or institutional capacity.

“Later, those banks were misused and money was siphoned abroad. The money of the banks now facing problems essentially belongs to customers and depositors. Therefore, the government now has to take responsibility for addressing the problems,” he said.

He said the present government has already taken many steps to resolve the crisis, but the process could not be completed overnight.

“It may take several years for the situation to return to normal. It is a huge task that requires proper plans, policies and programmes,” he said.

At the same time, healthy banks should also monitor how troubled banks can be brought out of their difficulties, he said.

“Twenty-six banks are still on track and continuing normal banking operations. Therefore, it would not be correct to say that the entire banking sector is facing a major liquidity crisis,” Sarker said.

Regarding Dhaka Bank’s NPLs, Sarker said the bank’s current NPL ratio was 3.4 per cent.

The bank is using various channels to recover bad loans, he said. Legal action is being taken where necessary, while the bank is also seeking support from Bangladesh Bank.

“However, the primary initiative to recover bad loans has to come from the bank itself. If the government and relevant agencies extend cooperation, the amount of recovery will increase significantly,” he said.

Sarker said banks try to attach the properties of defaulting borrowers through legal procedures. But after cases are filed in court, the process often comes to a halt because of writ petitions.

“In some cases, after several years, we have to start the entire process again,” he said.

Under the circumstances, he stressed the need for full government support for recovering NPLs.

“The number of Artha Rin Adalats (money loan courts) should be increased. At present, there are two such courts in Dhaka and Chattogram, which is not sufficient. At the same time, the scope for wilful defaulters to seek relief through writ petitions should also be limited,” he said.

Drawing on his 34 years of banking experience, Sarker said around 80 per cent of unrecovered loans were held by wilful defaulters.

“They have the ability to repay the money but try in various ways to keep the funds blocked. The remaining around 20 per cent become defaulters for various circumstantial reasons, particularly due to changes in business conditions or events such as wars in the Middle East,” he said.

He called for tougher action against wilful defaulters. If banks receive support from government law enforcement agencies in recovering loans, the recovery rate will increase significantly,” he said.

Regarding new loan disbursement, Sarker said the bank was being cautious to ensure that newly disbursed loans did not turn into NPLs.

Before approving a loan, the bank examines the customer’s business and personal background, the purpose of the loan, the ability to generate profits by investing the funds and the borrower’s repayment capacity.
The bank also assesses whether the loan could be covered by other assets if the business fails, he said.

“These issues are examined very carefully before a loan is disbursed,” he said.

Applications for new loans have also declined somewhat, Sarker said, as a large portion of Dhaka Bank’s business is based on industrial and commercial financing.

“New investment is not coming because of the gas and power crisis. This is not a liquidity crisis in the banking sector. The main problem is the weakness in essential logistics support, including gas and electricity,” he said.

Gas and electricity are fundamental to industrial and economic development, he said, adding that investment would inevitably be hampered if such facilities remained inadequate.

Sarker warned that the impact of the gas crisis had only begun to emerge and its full implications would become clearer in three to six months.

“Some loans will certainly become classified, and the impact may become visible within the next one or two months,” he said.

Many factories are either shutting down or operating below capacity, he said. However, before providing additional government funds to reopen closed factories, authorities need to determine why the factories became non-operational in the first place.

“It is not correct to assume that simply providing money will make a factory profitable again. A profitable factory generally does not shut down merely because of a shortage of working capital. Bankers are actually willing to provide working capital to profitable businesses,” he said.

Therefore, before providing funds, it must be established why the business has closed and whether it can become profitable again after receiving fresh investment, he said.

Dhaka Bank has provided loans to large business groups such as Transcom, Square and PRAN. However, as many customers involved in large projects have now become defaulters, the bank’s scope for extending fresh loans to large projects has become limited, Sarker said.

There are also relatively few new large projects at present, mainly because of the gas and electricity crisis.

“If these basic infrastructure facilities are restored, domestic investment will naturally increase,” he said.

The same applies to foreign investment, Sarker said.

“Foreign investors will first look at how comfortable local investors are and whether there is an environment in which they can invest and make profits. Foreign investors will not come simply because we invite them. The government has to ensure an investment-friendly environment,” he said.

Asked about Dhaka Bank’s business strategy, Sarker said becoming one of the leading private banks in the country was certainly one of its goals.

“Every bank wants to be number one. How far a bank can move ahead depends on its policies, programmes, initiatives, selection of the right customers and institutional capacity. If transactions perform well, the bank will naturally move forward,” he said.

Regarding Dhaka Bank’s position in remittance collection, he said remittances sent by expatriate Bangladeshis also enter the country through Dhaka Bank.

Sarker said Dhaka Bank was also actively promoting Bangla QR, which had already gained popularity in the market.

“Dhaka Bank is also taking various steps to make it more popular. However, users first need to know how to use QR. Alongside creating awareness, the bank is also benefiting from the system,” he said.

He also stressed the importance of building a “paperless Bangladesh” alongside cashless transactions.

According to him, the scope for fraud and irregularities is comparatively lower in digital transactions. Therefore, banking operations should gradually be shifted to digital and paperless systems.

“Not a cashless Bangladesh, but a paperless Bangladesh”-this is the goal under which Dhaka Bank is moving towards digitised banking, he said.

Sarker attributed Dhaka Bank’s strong position as a third-generation bank to both compliance with rules and regulations set by regulatory authorities and the business experience of its board members.

“The bank’s income is not the only source of support. Board members are also involved in other businesses and commercial activities. Therefore, we try to operate the bank from the right position and on the right track,” he said.

He said there had been no shortage of initiatives and efforts in this regard.

“People can make mistakes, and some mistakes have also been made. But those mistakes have remained within a tolerable level and have not crossed the limit,” Sarker said.