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16 Feb 2016   02:29:07 PM   Tuesday BdST A- A A+ Print this E-mail this

BB observers to watch

Fear in air about burst of bubble in banking

Moslem Uddin Ahmed
uns24.com

Stuck in banks’ throat: 

 --Snowballing lump of NPLs  
 --High lending rates, wider interest spread
 --Bloated liquidity, lack of investor borrowers 

With private investments stuck in a pause, banks used to live on proceeds from lending to government through its risk-free borrowing instruments besides investing capital in seesaw trade in stocks. Now government borrowing is at its lowest ebb for shrinkage in its import-payment obligation. Oils, consumer commodities are all dirt cheap on the global market.

They took another knock from a substantial loss of their captive clientele with local businesses getting a window of cheap-rated offshore borrowing from external sources following a little deregulation of the currency regime. Business magnets and experts having banking background draw a bizarre hiatus between costs of borrowing from the two sources: 12 percent to 14 percent being charged by banks at home, even after the tightfisted lowering of the lending rates from nearly 20 percent over many years while only 4.0 percent taken by foreign lenders whose domestic rates, however, are yet lower—hardly above the negative point.

“We’re bringing capital machinery with foreign loan at 4.0 percent interest,” AK Azad, a student politico-turned business magnet, who also had led apex trade-body FBCCI in his term as its president, told a live talk show on state of economy and finance of the day.                                                          

Banking expert Kandker Ibrahim Khaled at the same talk on RTV on January 19th night pointed out wider spread between lending and deposit rates, ranging over 5.0 percent, as one of the root causes of the economy and business not growing at expected pace. Another is high prices of fuels at home despite a global oil-price slump below $30 per barrel while the third one stands out as infrastructure handicaps.             

The diagnosis of country’s economic health as presented by Mr Khaled, a former deputy governor of Bangladesh Bank, can have a two-dimensional interpretation. For investment recession for the reasons cited, the economy slows down on the one hand while banks on the financial front reel from a two-pronged problem of swelling volumes of non-performing loans (NPLs) for failure in recovering the lent money and liquidity glut for a lack of credit-worthy borrowers.       

However, banks in the state sector suffer from a diametrically different malaise, apart from NPL stockpiles and investment droughts. That is described as “directed” and “forged’ lending. The summation is ‘corruption’, as allegedly smelt out by the country chapter of the Berlin-based watchdog Transparency International (TI). It’s a management problem. Political appointees on the boards and bureaucratic stranglehold are widely blamed for the immediate-past scams the public commercial banks (PCBs) got smeared in.                                      

In fact, banks seem caught on the horns of a dilemma: public ones getting hollowed through forged lending and getting recharged with recapitalization while private ones rolling in liquidity glut with idle money for a lack of scope for investment or lending to worthy borrowers. For a lack of innovative banking, the banks depend on traditional credit-guzzling tycoons and corporate entities. Many of them are loan defaulters—some, however, getting away through a government-paved exit route called ‘loan rescheduling’.

And this loan rescheduling itself proved to be a cobweb of irregularities (in euphemistic terms). Borrowing from one bank to repay part of the debt to another one came out as a novel con-trick of late. In a special case of detection and penalizing by Bangladesh Bank, central bank has been put in the dock of the High Court and its top notch is going to be summoned before a parliamentary watchdog body. That brought the inside ‘rot’ out in public view—more so through media focus.                                       

A leading newspaper shot a question here through its editorial: ‘Is there a conflict of interest?’ The editorial runs: It is perhaps the first of its kind that a special audit on Bangladesh Bank has been asked for the parliament`s Public Accounts Committee (PAC). The committee raised the issue of the central bank`s functioning by asking for a special audit of the bank within four days of the Bangladesh Bank having appointed an observer to oversee operations of Farmers Bank and slapping a fine on alleged illegal payment and loan irregularities.

‘It certainly raises eyebrows since the head of the Public Accounts Committee happens to be also the chairman of the executive committee of Farmers Bank.’ 

The newspaper pointed out Tk 400-crore anomalies over the sanctioning of loans from three branches in ‘gross transgressions’ of set rules. “Rules broken in giving credit to bank defaulters, bypassing the head office on the issue of such contentious loans, the cooking of books etc are all serious offences,” it said.

It is not a one-off case with the Farmers—such whistleblowers have also been deployed in a number of other banks and non-bank financial institutions (NBFIs). As of now, 15 banks and non-bank financial institutions have got BB-appointed observers. Seven of them are state-owned commercial and specialised banks, six private banks and two NBFIs.

The analysts, however, do not see a comprehensive remedies for the ills the banking sector, or the financial sector at large, are suffering from. And the troubles therein are seen as a reflection of the problems facing the country’s economy. State Minister for Finance MA Mannan, appearing at the above-mentioned talk show, however, didn’t fully agree with the critics. “The economy is growing, after all,” he said.                              

Khandker Khaled observed caving in (meaning the waning of growth potential) cannot be seen from outside before the fall. The economy is growing for a speed inertia left by the dynamism created by this same regime in the immediate past, he noted. “Mr Mannan was a bureaucrat—look into highhandedness of bureaucrats,” quipped the reputed banker, who had unearthed unexplained tales behind the stock-market scam, leaving a riddle as the curtain soon dropped on the show.                                  

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