Political culture, poor management and lack of punishment considered reasons behind their continued failure, economists and insiders say
All six state-owned banks (SOB) in the country are lagging behind in the first quarter loan recovery target set by the Ministry of Finance, according to the statistics of the first two months of the fiscal year (FY) 2021-22.
Economists and insiders believe that political culture, poor management and lack of punishment are the reasons behind the continued failure of state-owned banks in loan recovery.
However, the bankers said that borrowers have been struggling to pay back their loans amid the economic fallout caused by the Covid-19 pandemic.
According to the Financial Institutions Division (FID), The finance ministry gave six state-owned banks a recovery target of Tk1,605 crore bad loans for the first quarter (July-September) of the current fiscal year.
But they were able to recover only Tk155.59 crore of the set target during the first two months of FY22, only 9.69% of the whole target.
That means within one month, they have to achieve the remaining 90.31%.
Janata Bank fulfilled only 1.22% of their target while Bangladesh Development Bank Limited (BDBL) fulfilled 5.73%, Sonali Bank 6.24%, Agrani Bank 7.50%, Basic Bank 11.34% and Rupali Bank 53.94%.
Recovery of the bad loan data was presented at the meeting between the Finance Ministry’s Financial Institutions Division (FIDs) and chief financial officers (CFOs) of these banks at the finance ministry this week.
The meeting was presided over by the Additional Secretary of the FID AB M Ruhul Azad.
AB M Ruhul Azad confirmed the meeting and data. But he did not agree to give any more details about the meeting.
In this regard, a senior FID official, requesting anonymity, told Dhaka Tribune that the Ministry of Finance gives a target of loan recovery to the nationalised banks every year.
However, in the first quarter of the current financial year, there was a big deficit in the number of loans they had set for recovery.
“That’s why we sat down for talks with the officials of the banks last Tuesday. While some banks have shown promising success, most of them are lagging behind,” the official said.
FID not satisfied with recovery process
Meanwhile, the FID is unsatisfied with the recovery process of the banks.
The official also said that the top brass of the said banks have been verbally warned about this.
Zahid Hossain, former lead economist of the World Bank’s Bangladesh office, thinks that the government's unwillingness to punish the officials of the banks concerned despite their failure to meet the targets was the reason for the continuous failure of the banks in loan recovery with the country's political culture.
In an interview with the Dhaka Tribune, he said: “They (FID) say it is a regular process. However, if you notice, you will see that the government banks are lagging behind here regularly. It is also a continuous process.”
Asked about the reasons for this, he said: "I think there are two main reasons. Number one is the political culture. Those who default loans from government banks are mostly under the umbrella of big political parties.”
As a result, banks cannot put pressure on them if they want to. “Again, they are not given proper powers by the government in this regard,” he added.
The second reason is the lack of emphasis on proper accountability and punishment of bank managers.
“Officials of the state-owned banks believe that they have a specific duty hour and doing that is enough. That’s why they do not give any extra effort. The Ministry of Finance also does not focus much on the punishment when the targets are not met,” he added.
Meanwhile, Executive Director and spokesperson of Bangladesh Bank Md Serajul Islam said that the economic strategy is another reason behind the failure of government banks to meet their targets.
He said: “It is true that state-owned banks are lagging behind in loan recovery. One of the reasons behind this is their relaxation. But I think the strategy that is used to set their goals here is another point. The target is always more than what needs to be achieved. It's a part of the process.”
Managing Directors of state-owned Agrani Bank, Janata Bank could not be reached for comments.
Analyzing the FID data further shows that Janata Bank Limited secured top position in defaulted loans until August with Tk13,772.85 crore among all government banks in the country.
The bank’s target for recovery was set at Tk450 crore while it recovered only Tk5.51 crore in the two months of the first quarter.
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Sonali Bank Limited recovered only Tk28.10 crore in the same period out of its target of Tk450 crore. Sonali’s total defaulted loan stood at Tk10,397.88 crore at the end of August.
Rupali Bank recovery of defaulted loans is higher than any other state bank, which is Tk75.51 crore. Its target was Tk140 crore. Rupali accumulated a bad loan worth Tk3,859 crore.
According to FID’s statistics, the loan recovery target was not completed in the fourth quarter (April-June) of the previous fiscal year. It was Tk1,173.73 crore (73.13%) in the fourth quarter amid the Covid-19 pandemic. But FID loan recovery target was set at Tk1,605 crore in the fourth quarter.
The defaulters paid back only Tk155.59 crore to the six state-run specialised and commercial banks in the two months of the first quarter of the 2021-22 FY.
In the fourth quarter of the last fiscal year, banks were able to retrieve Tk1,173.73 crore against the same amount of Tk1,605 crore. The total classified loan was Tk43,628.36 crore at the end of August this year.