Crackdown on big loan defaulters: Atiur

The central bank chief has vowed a crackdown on defaulters failing to service huge debts owed to Bangladesh's commercial banks and ruled out concessions for chronic defaulters beyond existing norms.

"We must bring down the level of loan default to single digit," Bangladesh Bank Governor Atiur Rahman told bdnews24.com in an exclusive interview on Monday. "This is my dream."

Billions are owed mostly to state-owned banks by top borrowers who continue to seek special favour but the governor says nothing can change the existing rules.

The governor said the economy was benefitting from "the stability in the banking sector" and that the central bank was tightening its belt through better supervision and faster response to irregularities to avoid default.

"Quality lending is the key and our officers are issuing early warnings in some cases," said Atiur Rahman, well into his sixth year as the top regulator.

Last week, Rahman won the ‘GUSI Peace Prize International 2014’ Award for his work in economics with a focus on welfare of the poor.

He was appointed as the Bangladesh Bank Governor on Apr 30, 2009 during the previous Awami League-led Grand Alliance government. Rahman's appointment was supposed to expire in Apr 2013, but the government extended it for another term.

Excerpts from an exclusive interview of Atiur Rahman

bdnews24.com: How do you rate the banking sector in Bangladesh now after five years of downturn in the global economy?

Atiur Rahman: The banking sector is largely stable now.  Liquidity is satisfactory. People are now getting loans from the banks. Call Money rates have been stable between 6 and 8 percent in the last few years. It has not gone up even between the two Eid festivals.  Previously, during the Eid festivals, the call money rates would shoot up by 100 to 150 percent.  The foreign exchange rates are also stable. It is true the Bangladesh Bank was buying dollars from the market to keep the exchange rate stable, but that is to leverage remittances and export earnings in the best possible way. Imports are starting to increase and demand for dollars is going up but we are not buying dollars from the market anymore.

If imports rise, won't you feel the pressure on foreign exchange reserves? Won't that affect the economy as a whole?

I must reassure all that the country has nothing to worry about. Growing imports is good for our economy. That means confidence is back amongst our investors. It means investment will increase. That is why imports of capital machinery and industrial raw materials are going up. It is true there will be some depletion of foreign exchange reserves but why worry! We have a $22 billion reserve. It is true our current account balance may turn negative with rising imports. We have a sufficient reserve and $22 billion is not a small amount for a country like Bangladesh. One should not worry about even a negative BOP (Balance of payments). It is more important for get more investments to boost the economy in the long run. Our current account balance has been in deficit most of the time -- so don't worry about that.

Much idle capital is lying unused in the banks. In spite of that, private lending is not going up.

It is not correct to say private lending is not going up. Private lending stood at 12 percent in the last financial year. Some groups were given loans to invest abroad. Altogether, private lending was around 15 percent. Our monetary policy placed that target at 16 percent and we will reach it.

You say banking sector is stable but what about rising loan defaults?  Is that not rising as well?

That is true. Loan default is growing. One reason for that is the way we used global procedures to measure loan default. But it is true that due to the political turmoil last year, many business groups could not pay back their loans because they suffered losses. That has added to our loan default. But I am determined to bring down loan default to single digit. That is my dream.

How do you achieve that?

From our side, as the central bank, we have advised all commercial banks to give out good loans meaning only lend to those who will repay on time. And to avoid uncalled for interference in the banking process, we have appointed professional managing directors and board of directors in the government-run banks. This should have a positive effect.

The Banks have been told to go by repayment track records as they go for fresh lending. We have told them to avoid taking political considerations into account in the banking process, especially when loans are given out. Loans must be given only after a clear professional assessment that they would be repaid on time. For all 'bad loans' given out, the banks will have to take responsibility. That is something we have pointed out again and again.

The central bank has issued similar guidelines before but the country has not been come out of the culture of loan default. Is that not true?

I will insist that times have changed. We have effected major changes in the way we 'supervise' commercial banks. We have adopted 'early warning' mechanisms. And we are moving firmly against all scamsters and corrupt officials. A group of Bangladesh Bank official is engaged in tight supervision of all commercial banks. We have appointed many new young professionals in this team. They will pounce on any irregularity that can be discerned.  We have also opened a 'Complaint Cell' in Bangladesh Bank. We are getting regular feedback from that cell. 7000 complaints have been already received by that cell. The complaints are being examined with some speed and urgency and redressal is available soonest possible.

But after all this, we still have to live with the Hall-Mark scam involving the Sonali Bank.

I admit the Hall-Mark scam has eroded the credibility of our banking sector considerably. But please recall that the scam was detected by our officials, those in Bangladesh Bank responsible for supervision. We have learnt our lessons from this scam and will ensure this never happens again. That is why we have made tight supervision arrangements. We are appointing observers in private banks, like in government-run banks, to ensure foolproof oversight. I am sure we will get results.

[According to the latest figures of the central bank the loan default stood at Tk 572 billion at the end of the July-Sept quarter of the current financial year, which is 11.60 percent of the total loans.

This was less in the previous quarter -- Tk 513 billion in April-June quarter of the last financial year or 10.75 percent of the total loans.]

Recently, there has been some talk about rescheduling the loans of some major business groups. Can you share your thoughts on this issue?

I am aware of requests by some business groups asking for loan rescheduling. They say they have sustained losses because of adverse business environment in the past, especially during the caretaker regime. I don't want to mention any group in particular but I can say we will make a thorough assessment of their cases under the Company Act. But if any bank tries to favour any group outside the scope of law, they will face punishment. The Bangladesh Bank is clear that everything must happen lawfully. We want to pull out business groups when they are in trouble but that does not mean banks will do what these business groups want. They cannot dictate terms. If any bank takes decisions on fictitious claims, they will not go unpunished.

[On Aug 5 this year, Beximco Group Vice Chairman Salman F Rahman sent a proposal to the central bank for restructuring its Tk 52.69 billion defaulted loans. A detailed proposal prepared by prominent audit firm, SF Ahmed & Co was also enclosed with it.

A letter signed by Rahman said “politically motivated credit restrictions on the group from 2001 to 2008, as well as other forms of harassment in the past” made it difficult for it to get enough working capital for some time.

On Aug 17, Bangladesh Bank sought opinions from the seven concerned banks. They are state-owned Sonali Bank, Rupali Bank, Agrani Bank and Janata Bank and three private banks National Bank, Exim Bank and AB Bank.

The matter was discussed in three Board meetings of Sonali Bank and on Nov 3, it agreed to allow Beximco to give the opportunity.

Beximco's textile and garments divisions owe Sonali Bank Tk 9.82 billion. The bank's board decided to grant the group time until 2026 to repay the loans. For which, the group will have to start paying instalments after two years. The decision awaits a nod from the Bangladesh Bank to be effective.

The six other banks are yet to decide on the proposal.

Beximco also owes money to some other financial institutions.

According to the latest figures released in September, the group owes Tk 49.44 billion to the four-state owned banks.

Other than this, the group's dues to three private banks and some non-banking financial institutions stand at Tk 13.64 billion. Beximco's total outstanding loan amounts to Tk 63.08 billion.]

What is your observation on the national economy?

Bangladesh's economy now stands on a solid foundation. Investments were down for a while. But that phase is past. Despite a global downturn, Bangladesh has managed a 6 percent plus GDP growth rate -- something that has drawn praise from the World Bank, IMF and the donor nations.

Both the IMF and World Bank have praised our performance in no uncertain terms.

Are you satisfied with the country's economic performance?

Let me give you some statistics. When I took charge as Bangladesh Bank governor in 2009, Bangladesh's foreign exchange reserves stood at $7.4 billion. In five years, it is up three times and stands at $ 22 billion. Remittances from expatriates have shot up from $9.69 billion to $14.23 billion in this time. Exports have shot up from $15 billion to $30.18 billion while imports have shot up by 75 percent to $40 billion. Inflation is coming down steadily and now stands at 6.6 percent on a point-to-point basis which means we are close to our target of bringing down below 6.5 percent.

If the political situation stays stable and the world economy recovers, we are fine.

I will also mention that our policy of 'financial inclusion' has paid rich dividends in both empowering the poor and strengthening the banks. There are ten million accounts of Tk 10 for peasants. Mobile bank accounts have gone past the 20 million mark. People can send money to any place with seconds.

Branches are increasing in both towns and villages. Lending in agricultural sector has gone up. All this will add momentum to the forward movement of our economy.