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Step to rejuvenate ailing public sector banks

By Shahiduzzaman Khan
Government will issue bonds worth Tk 1700 crore as capital financing to the nation alfsed commercial banks (NCBs) shortly The move has been taken to rejuvenate the NCBs suffering from liquidity crisis.
Bangladesh Bank sources say. an amount of Tk 150 crore is being earmarked tn the next budgetary provisions for paying the NCBs as interests from the public exchequer The amount will be realised by Imposing fresh taxes in the next budget
A high level meeting on the banking sector last month made a critical review of the performances of the NCBs The meeting noted with concern that capita) shortage faced by the NCBs was mainly due to mismanagement tn the opera tlonal procedures and corrup tlon by a section of bank employees.
The NCBs gave loans to the borrowers without examining the feasibility of each and every project. According to new loan classifications of Bangladesh Bank, a huge amount of loans provided by the NCBs has become bad or doubtful debts. The new procedures obliged the NCBs to show these debts as liabilities, not assets.
Expressing its dissatisfaction over the outstanding loans and mismanagement in the lending procedures, the meeting called for taking immediate effective measures to check further deterioration of the banking system.
The meeting noted with concern at the volume of classified loans compared to overall credit scenario.
Under the financial sector reforms programme, each public and private sector bank
will classify their own loans given to the borrowers as doubtful or bad debts. Banking circles says, if the volume of classified loans Is Increased, the amount of profit and bonus will automatically be reduced and share prices will be Influenced. The private banks will also be affected while the nationalised banks will not be In a position to offer bonuses to their employees.
One of the major conditions for releasing second tranche of financial sector credit is to achieve target of loan recovery from 100 big defaulters. The recovery rate is really poor, the meeting noted. This will leave negative Impact on country's whole economy. All nationalised banks must go all out to recover the huge amount of outstanding loans from 100 big defaulters. Otherwise, the release of second tranche of the credit is highly uncertain, the meeting noted.
The meeting, chaired by Kafiluddln Mahmud, former finance adviser, asked the NCBs to realise that issuance of bonds to support them Is just a one-time step. The banks must ensure that such step should not be allowed to be taken in future.
Credit recovery courts have gone Into operation to improve the realisation of overdue credit. Steps have also been taken to exchange credit information among the banks to restrict the defaulters from taking fresh loans. An amend ment to the laws is under pro-
The meeting asked Bangladesh Bank to gear up supervision and monitor the loan-giving procedures pursued by NCBs. The Finance Ministry will bring In structural and institutional changes in laws and regulations to help eradicate mismanagement in loan recovery situation, the meeting decided.
The meeting was attended by Shegupta Bakht Choudhury. Governor, Bangladesh Bank, Khorshed Alam. Principal Secretary. Ministry of Finance. Dr. Harunur Rashid. Additional Secretary, (Banking and Investment). Finance Division. Abdul Karim, Managing Director. Bangladesh Shilpa Bank.
Xhsanul Haq. Managing Director. ' Sonali Bank and M. A. Reza. Joint Secretary (Bangladesh Bank). Finance Division.