Monday, December 10, 2018 | ePaper
Banking sector's health deteriorating fast
Loan irregularities spread as 'contagious' disease: Dr Salehuddin
Health of the banking sector is deteriorating rapidly and it may have huge negative impact on the economy, said a former central bank governor on Wednesday.
"Large non-performing loans (NPLs) in both state-owned and private banks, corruption, loans scams, poor risk management practices and lack of good governance are some of the causes behind the ailing health of the sector," Dr Salehuddin Ahmed told The New Nation yesterday.
He said the problem is serious and the health of banks may deteriorate further if the financial sector governance does not improve immediately.
"The indicator most often cited as reflecting the health of the banking system is the ratio of NPLs to total advances. The ratio of gross NPLs to gross advances jumped to 20 per cent at the end of June this year from December last year. The high share of NPLs not only a matter of concern for the banking sectors but also for the economy," added Dr Salehuddin Ahmed.
The volume of NPLs rose to Tk 89,340 crore as of June 30, 2018 from Tk 74,303 crore as of December 31 last, according to Bangladesh Bank.
"Lack of transparency and accountability of the bank's board and management in sanctioning loans, large loan irregularities and weakness of the regulator were mainly responsible for rising non-performing loans. Among all the banks, state-owned banks particularly performed poorly with large NPLs and bad governance," observed Dr Salehuddin Ahmed.
The former central bank governor further said that widespread irregularities took place in disbursing 'big loans' by both the public over in the last few years. These loans have become non-performing ones and thereby helped deteriorate asset quality of the respective banks finally eroding health of the banking sector.
"Loan irregularities first occurred in the public banks. But, now it is spreading in private banks as 'contagious' disease, which is a 'ominous' sign for the banking industry." said Dr Salehuddin Ahmed.
"Despite loan irregularities minor actions were taken against the loan scammers and defaulters as they have influence in political circle as well as in the society," he added.
When asked, he said, "The governance in banks has not improved due to lack of the government's political will. Even, two amendments in the Banking Company Act have also undermined good governance in the sector."