Bangladesh Bank has posted an observer in the problem-ridden BASIC Bank to ensure enforcement of prudential regulations and help revive the bank from continuous financial deterioration.
The central bank took the decision and issued an order in this regard on Wednesday, deputing General Manager Ashok Kumar Dey of the Department of Banking Inspection as the observer with immediate effect.
Ashok Kumar Dey has been assigned to attend all the board meetings of the bank and observe the audit reports.
Bangladesh Bank signed a MoU (memorandum of understanding) with the bank on July 17 due to capital inadequacy, provision shortfall, continuous deterioration of profit, high rate of advance-deposit ratio, aggressive on loan disbursement, approval and renewal of loans, huge irregularities on loan rescheduling and lack of corporate governance in management.
The bank fell on risk due to failure in compliance of prudential regulation in every case.
But, the bank failed to recover its financial health following the condition of MoU, rather all financial indicators deteriorated during July to September period.
Bangladesh Bank recently held a meeting with BASIC Bank internally to review the bank’s financial situation. After the meeting, the Bangladesh Bank took the decision to post an observer in the bank, said a Bangladesh Bank senior executive.
According to latest data, capital shortfall of the bank rose to Tk6bn during July-September period from Tk1.82bn.
Provision deficit increased around 50% to Tk3bn from Tk2bn and non-performing loan increased to Tk18bn from Tk9bn.
The proposed MoU that contains 26 conditions stipulates that BASIC Bank must improve its capital to 11% of its risk-weighted assets while the asset growth should not exceed the capital growth. In addition, the credit growth must not exceed the deposit growth.
The bank’s classified loans should be reduced to 5% of the total loan by December from the existing 17% while its credit growth should not exceed 10% annually and 2.5% quarterly.
The bank will also be asked to realise Tk2.12bn which is 30% of Tk7bn classified loans by December.
All the classified loans of the bank’s Dilkhusha, Gulshan and Shantinagar branches are required to be recovered by December following the MoU.
Bangladesh Bank Governor Dr Atiur Rahman on Sunday said, the central bank, for its financial inclusion efforts, would become a role model for many central banks of the globe in a few years.
“In the last few years, you might have noticed that Bangladesh Bank has recalibrated its focus from traditional central banking to a comprehensive, all-encompassing effort at financial inclusion and financial stability,” said Dr Atiur Rahman at the Annual Banking Conference 2013. “The day is not too far away that Bangladesh Bank would be considered as a role model as other central banks would intend to replicate the financial inclusion initiatives of the Bangladesh Bank,” he said.
He said the banking system is playing an important role in running the economy smoothly and thus helping the process of inclusive growth, which is the ultimate objective of the central bank.
Over the last few years, BB has been relentlessly pursuing to attain the expected economic growth through mass participation by emphasising on bringing a large segment of the population who are still un-served or underserved by the banking system into the network, Dr Atiur noted.
“Thus, people like sharecroppers, women entrepreneurs, marginal farmers who did not have access to credit before are now getting financing facilities without hassles and at affordable interest rates,” he said.
In the last few years, stress was also given on adequate financing for agriculture and allied activities, SMEs by promoting green banking and mobile banking and also financial services throughout the country, the Governor mentioned. Pointing out that no-frill bank accounts brought many goods for lower segment of the society, he said, the BB was moving towards activating these accounts by providing smaller loans under refinance schemes.
About improving supervisory capacity of the BB in the face of some recent financial irregularities, he said the BB has started introducing strategic changes in its existing supervision techniques for ensuring financial stability in the banking sector.
The central bank has introduced US dollar (USD) and Bangladesh Taka (BDT) swap arrangement through offshore banking units (OBUs) of the commercial banks, officials said.
Under the new arrangement, the banks are allowed to swap maximum $20 million from Bangladesh Bank (BB) against their BDT through their OBUs for maximum six months.
"We want to meet the growing demand for foreign currency for investment in Bangladesh through offering such facility to the banks," a BB senior official told the FE Monday.
He also said the central bank has already communicated with the banks about introduction of the USD-BDT swap facility.
"We may extend the tenure of the swap facility if necessary," the central banker explained.
The banks will receive interest on their invested BDT on the basis of reverse repo rate from Bangladesh Bank, while the banks will have to pay at the London Inter-bank Offered Rate (LIBOR) plus 1.0 per cent interest to the central bank for the US-dollar amount, according to the arrangement.
"Large foreign currency borrowers including Bangladesh Petroleum Corporation and Biman Bangladesh Airlines may take advantage of the new arrangement through borrowing from local banks," another BB official noted.
The central bank has taken the latest move against the backdrop of healthy position of the country's foreign exchange reserve in the recent times.
The country's forex reserve rose to $16.89 billion Monday from $16.85 billion on the previous working day due mainly to higher growth of export earnings and lower import payment pressure in the recent times, according to the BB officials.
"We're able to settle more than five months' import bills with the existing forex reserve," another BB official said, adding that the reserve would increase gradually in the coming days.
The deposit and lending operations of OBUs are carried out entirely in foreign currencies.
The overseas banking operations at normal bank branches are done over separate counters, by maintaining separate offshore banking accounts.
Currently, 31 local and foreign commercial banks conduct OBU operations in Bangladesh.
News:The Financial Express/20-Nov-2013
Bangladesh Bank (BB) on Tuesday published “Thoughts of Banking and Finance”, the first journal of the central bank.
Governor Dr Atiur Rahman launched the journal at a programme at the Bangladesh Bank Training Academy (BBTA) in the city.
Addressing the luncheon programme, he said there is no alternative to the research to expedite development process, and local research process should be strengthened to maintain the pace of development.
Referring to the different steps of the central bank including low rate lending to the agriculture sector, the governor said research should be done on the impact of such initiatives to make them more effective.
He said the banking sector already adopted many modern technologies those warrant proper review and research so the central bank can take steps to ensure their utmost benefit to the people.
The extent of default loans increased in the third quarter due to tightening the loan classification guideline, sluggish business activities during the political uncertainty and interruption in energy supplies.
The classified loans increased by Tk44bn or 8% to Tk567bn in the July-September quarter from Tk523bn of the April-June quarter of this year, according to Bangladesh Bank data. The classified loan is about 13% of the total outstanding loan of more than Tk4tn.
The total classified loan was Tk510bn in March this year, which was Tk290bn in June, 2012.
“The classified loans increased due to tightening the guideline,” said a senior executive of Bangladesh Bank. Besides, sluggish business during the political uncertainty and lack of gas and electricity pushed the classified loans up, he said.
Bangladesh Bank Deputy Governor SK Sur Chowdhury said the commercial banks have classified the loans from March quarter following the international standard guideline issued by Bangladesh Bank.
He, however, said the banks have faced some problems to follow the new guideline. “They will overcome the problems gradually.”
According to the new guideline, banks have to classify the loans in three categories, included sub-standard, doubtful and bad or loss.
Of the total classified loans, four state-owned banks have Tk241bn, private commercial banks Tk223bn, specialised banks Tk87bn and foreign banks Tk14bn.
Of the state-owned banks, Agrani Bank’s classified loan stood at Tk51bn, which is 27% of the total outstanding loan; Janata Bank Tk47bn, which is 18% of outstanding loan; Rupali Bank Tk16bn, which is 17% of their outstanding loan; and Sonali Bank Tk125bn, which is 42% of their total outstanding loan.
Under the revised loan classification guideline, the general provision against all unclassified loans of small and medium enterprises (SME) has been set at 0.25% from the existing 1%.
Besides, the base for provisioning has been re-fixed at minimum 15% of the outstanding balance of a loan from 20%.
Under the revised provisions, the down-payment for the first time rescheduling of a term loan has been reduced to minimum 15% from at least 25% previously of the overdue installments or 10% of the total outstanding amount of a loan, whichever is lower.
The application for second time loan rescheduling will be considered upon receipt of cash payment of minimum 30% of the overdue installments or 20% of the total outstanding amount of a loan, whichever is lower.
The application for third time loan rescheduling will be considered upon receiving cash payment of minimum 50% of the overdue installments or 30% of the total outstanding amount of the loan, whichever is lower.