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BASIC loans the costliest

Bad loans and weak governance to blame

Sajjadur Rahman
*** BASIC Bank's NPL will be no less than 40 percent of its total loans, an official of the bank said ***
Scam-hit BASIC Bank has made loans more expensive than any of the 56 banks
operating in the country, according to latest data of Bangladesh Bank.
The state-owned bank's weighted average interest rate on loans stood at 16.37 percent on March 31 this year, up by more than 3 percentage points than the average rate of all banks.
BASIC's interest rate spread, which is the difference between lending and deposit rates, is also highest among all eight state-owned banks. Its spread was 5.55 percent at the end of March, against the industry average at 5.15 percent.
"Bad loans and weak governance in the bank pushed its interest rate up," said Monzur Hossain, senior research fellow at Bangladesh Institute of Development Studies.
At the end of December 2013, BASIC's nonperforming loans stood at 11.82 percent or Tk 1,282 crore of its total loans, down from 18.43 percent or Tk 1,863 crore in the previous quarter. The credit for the fall in N PL goes to the central bank, which had relaxed loan rescheduling rules in December 2013 to safeguard businesses affected by political unrest. The BB move helped all banks, especially the state banks burdened with bad loans, reduce their NPL.
"But in reality, BASIC Bank's NPL will be no less than 40 percent of its total loans," an official of the bank said, requesting not to be named.
The official said, before 2009 BASIC's NPL had never crossed 5 percent of its total loans.
He said it had been the best state-owned bank till 2009 when the Awami League-led government formed a new board of directors headed by Sheikh Abdul Hye Bacchu.
According to insiders in the bank, BASIC has lent around Tk 8,500 crore since September 2009. Of the amount, nearly Tk 4,500 crore are bad loans and may never be recovered.
"The bank charges higher rates from its clients to show profits. But why will people borrow at this high rate?" questioned a managing director of a private bank.
"It means borrowers are taking loans In reply, he said: "One person can't be 100 percent perfect. I think there should be some wanting so we can strive more and improve."
"It is true that we could have done a lot better. At the same time, we should not miss the point that we have not achieved less," he said, adding that no central bank in the world has been able to bring in as many changes to the banking sector as BB has in the last five years.
BB particularly came under strong criticism for its failure to act against allegations of corruption at the staterun Basic Bank. But Rahman does not accept the charges.
"Please show me an example where an observer has been installed at any public bank in the country's history. I have sent there a qualified observer. And we have been able to stop the bank's bleeding. We are doing the remaining work."
The governor also touched upon the issue of corporate social responsibility, which went up after he came to the scene. Last year, the banking sector spent Tk 447 crore, one-third of which was scholarship for poor students.
"There is scope to do more in terms of giving back to the society."
Traditionally, the governor enjoys autonomy. At the same time, he has to work with a political government, as historically they are appointed by the government.
"The governor of Bangladesh Bank is all in all in making the monetary policy'. We never actually discuss the reserve money or broad money or inflation with the government. Our growth forecast sometimes does not go with the government's forecast."
Rahman said there is no dispute between the government and the central bank, adding that there is, in fact, a very good understanding between the two parties.
About his future plans, the governor said the central bank will accelerate its progress in areas of digitisation and financial inclusion, while not compromising on good governance.
Rahman earns less than 10 percent of what he used to earn from his time as a professor of Dhaka University and other consultancy works. "I am not here to earn money. But I am very, very happy for the opportunity to work for the people."