‘Forced adjustment of default loans will put our economy at risk’

Syed Mahbubur Rahman, managing director and chief executive officer (CEO) of Dhaka Bank, as well as chairman of the Association of Bankers Bangladesh (ABB) speaks to Rejaul Haque Kawshik about the current state of the banking sector, the steps required to reduce non-performing loans and the future plans of Dhaka Bank. 

TBS: What is the biggest challenge in banking sector? 

The biggest challenge in banking sector is non-performing loans (NPL). It is the root cause of all other problems in the sector. 

TBS: How does it affect the banking sector? 

These loans are affecting our revenues, liquidity and re-investment.

Because of cash crunch, banks are facing setbacks in giving loans to mega projects. 

TBS: Despite the efforts of the government, the central bank and other banks, why such loans are rising?

During 80s, only state-owned banks provided loans. The public banks were dictated by the government that time. Besides, there were many other issues which contributed to the rise of the NPL in the state-owned banks then.

The borrowers took loans for one purpose, but used it in another sector. 

Did they face any penalty? No, rather the scammers were given chance to reschedule their loans.  They were refinanced. This process gave a 'cultural shock.'

This practice was transferred to private banks later. If we could take punitive action then, it would not spread to the private sector. Unfortunately, we could not take any action. 

TBS: So, what can we do now? 

We need to reform the Money Loan Court Act. There are a number of loopholes in the act and the loan defaulters take the advantages of these. They use their civic rights and fundamental rights to escape penalty.

The whole legal process is lengthy. It takes time to transfer the cases from one bench to another. 

Then it takes time during vacating any stay order. 

Besides, vacations in court, crisis of judges while forming a new bench, and two more years for appeal plea give advantages to the willful defaulters. 

The businessmen who became defaulters unwillingly come to the bank. Bankers and the defaulters sit together and try to find out a way. Their debt can be rescheduled. But willful defaulters do not come to banks. They are roaming freely. 

We need 'naming and shaming' to create social barriers for them. 

Recently, export trophies were given, where such loan defaulters took part. This encourages scamming. We need to stop giving any VIP status to them. 

Our banks focus on short-term gains but now they should focus on long-term gain to sustain in the banking sector. 

Nowadays, you will see 25 to 30 branches of the same bank in the same area. 

When several banks go to a borrower, he gets the option of getting more loans from banks. The person then takes five crore taka instead of one crore and misuses that money.

In that case, the banks do not get their returns though the counting of interest begins from the day of taking the loan.

Besides, our quality of human resource is not good. All of these are responsible for the current scenario of the banking sector. 

TBS: What do you think about the rescheduling of loan at 2 percent down payment? 

This process has not begun yet. Many defaulters are not repaying the debt thinking that they will be able to pay back the loans in this process.  

TBS: Could you please explain?

The central bank has issued a special guideline for rescheduling the loans. The policy gives the defaulters a chance to repay the debt in 10 years at nine percent simple interest rate and two percent down payment. No matter at what percentage they had taken the loans, now, they have to pay nine percent interest.    

Application to avail this opportunity is open till October 30. the central bank issued a directive on this process on May 16. 

According to the directive, the deadline was up to August 16. But it has been extended till October 20.

I will be able to comment on the success or failure of this step after the closing of application.