Central bank sets guidelines for ailing SCBs
Governor says time needed to repair damageNazmul Ahsan
The Bangladesh Bank has recommended reforms in ‘lax policies’ on lending, borrower selection, risk assessment and monitoring for all the four state-owned commercial banks to effectively stop banking forgery, soaring capital shortfall and loan scams.
Central bank officials have told New Age that the recommendations are the last efforts towards the end of the incumbent government to shore up Sonali, Janata, Agrani and Rupali banks that have been plagued with problems.
The central bank governor, Atiur Rahman, said that the situation in SCBs was gradually improving because of corrective measures the central bank was imposing but admitted that it would take time to repair the ‘damage’ already done to state-run banks.
‘We are serious about streamlining public-sector banks by enforcing strict oversight so that regulations are strictly adhered to in the banks and forgery no longer takes place,’ Atiur told New Age on Thursday.
‘The recovery of bad loans has stated going apace in recent times and the provision shortfall has been on the decline because of zero tolerance of the central bank towards the state-owned banks,’ he said, hoping that things would be in a better shape in course of time.
‘More time is needed to restore normalcy to the ailing banks back as damage has already been done,’ he told New Age, referring to loan scams of Sonali and BASIC banks.
The recommendations made in the diagnostic report
separately for each of the four banks were submitted to the finance ministry on Wednesday, an official said.
The diagnostic examinations were run on the banks’ asset quality, liquidity, risk management, internal audit and compliances as the core banking areas have recently come under the focus of the central bank and the International Monetary Fund after a number loan scams had come to light, a top central bank official said.
The IMF in a recent report said that the combined shortfall of the four SCBs reached more than Tk 17,000 crore as of June contrary to the reported Tk 9,062 crore.
The five banks — three state-owned commercial banks and two specialised development banks — have Tk 26,800 crore in bad loans, or 62.7 per cent of the total classified loans of Tk 42,730 crore, according to the Financial Stability Report 2012 that the central bank released.
The diagnostic report on Sonali Bank said that its bank management should have honest and positive attitude in taking appropriate steps against the people especially against high officials involved in the financial scam and other irregularities to mitigate the chance of forgery.
Borrower selection, loan assessment, evaluation and appraisal should be done properly, the report said adding that systemic lapses in liquidity management should be addressed to stop or mitigate the chance of forgery and malpractice in the bank that is the largest of the SCBs.
‘Bank management — especially in asset classification, provisioning, capital calculation and disciplinary action against the official involved in financial scams — is in some cases not compliant with the observation, instruction and recommendation of the Bangladesh Bank,’ the central bank report on Sonali Bank said.
‘It is observed that in the past three years, the capital position and the net profit of the bank have deteriorated becoming a great concern for the continuity of its business,’ the report added.
The bank’s head office has no proper control on branch activities and this is a serious weakness in monitoring, the report said.
The report on Agrani Bank recommended an early formulation of strategic planning for loan portfolio and a liquidity contingency plan.
The report also recommended the introduction of risk limit for all appropriate areas in keeping with the central bank guidelines and international best practices, the periodical review of operation policies keeping in mind the bank’s business strategy, international best practices, memorandums of understanding with the central bank and other changed market scenario.
The report said that extensive and effective management oversight on risk mitigation policy and process was a must to restore image to the ailing Agrani Bank.
‘The bank is found to be in a considerable risk in terms of aggregated risk against its asset quality, liquidity risk management and internal audit and control mechanism. The situation warrants an effective involvement and oversight of the senior management on risk mitigating policy and procedure. An extensive and close regulatory supervision is also required,’ the report said.
The Bangladesh Bank in the report on Rupali Bank Ltd asked the management to cautiously select large loans and strengthen the existing large loan recovery drives.
The recommendations also include the introduction of risk limit for all appropriate areas in keeping with central bank guidelines and international best practices, proper implementation of the internal audit process manual and an improvement in the current reporting pattern under the changing banking environment.
‘The bank’s large loan management is found quite concerning as 64.40 per cent of the total large loan is non-performing. The credit policy of the bank is not viewed or updated timely to mitigate contemporary credit risks. The bank’s important asset-quality ratios are quite unsatisfactory. The underwriting procedure of the bank is not properly attuned to the policy and procedures.’ the report said.
Stressing the need for a revision in the credit policy of Janata Bank Ltd, the central bank in the report said that liquidity risk management policy and internal control and compliance policy of the bank should be worked out covering the whole context of the bank on approval of the bank’s board.
The other recommendations on Janata include the establishment of a cell for bad loan recovery, strict compliance with the instruction and recommendation of the central bank and other regulatory authorities.
The report also suggested that the bank management should be made more accountable to the board and the board should be more transparent in its responsibilities.
‘The loan evaluation process of the bank is poor. Borrower selection, loans and advance sanction, documentation and disbursements take place in a traditional method and sometimes without any justification, prompting the bank to incur financial losses,’ the report on Janata Bank said.
‘The credit portfolio is poorly managed. The rate of non-performing loan is 33.67 per cent. In many cases, loan classification and provisioning are not done with due care and attention,’ the report added.
Atiur said the situation in the banking sector would be streamlined in the near future if the political process did not adversely impact the business environment.
The little-known Hallmark Group and five other companies embezzled Tk 3,547 crore from Sonali Bank with the help of bank officials early this year.
The Hallmark Group alone took away Tk 2,686.14 crore, T and Brothers Tk 609.69 crore, the Paragon Group Tk 146.60 crore, Nakshi Knit Tk 66.36 crore, DN Sports Tk 33.25 crore and Khanjahan Ali Tk 4.96 crore.
The central bank in recent times also detected many irregularities in Motijheel, Shantinagar, Dilkusha and Gulshan branches of BASIC Bank in loans involving about Tk 4,424.93 crore between December 2009 and November 2012.
The Gulshan branch of the bank gave Tk 1,594.73 crore of the amount in loans and majority of the loans was issued without proper scrutiny.
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