The state-owned commercial banks (SOCBs) are responsible for 43 per cent of the total non-performing loans (NPLs) in the banking sector, which means they are not financially solvent to continue to run their businesses, according to an analysis of the Bangladesh Bank Training Academy (BBTA).
The country’s banking sector is suffering due to the massive amount of defaulted loans in these banks. NPLs, a serious issue in the banking sector, of the state-owned banks are even higher than private and foreign commercial banks, says the analysis.
The academy disclosed the analysis in the latest issue of the BBTA Journal titled “Thoughts on Banking and Finance”. It was published by Bangladesh Bank (BB) on Sunday.
In the journal, BBTA pointed out that SOCBs are more affected by this curse — NPL — than the private sector banks. Each of the SOCBs has a staggering 20 per cent of their total loans as NPLs.
The Asset quality of SOCBs is inferior to private and foreign commercial banks. So, the default risk of SOCBs is higher than these banks.
It also indicates that the management efficiency of state-owned commercial banks is lower than private commercial banks.
Moreover, SOCBs’ loan portfolios are seriously affected by NPLs among all types of banks in the sector. NPLs of private banks were also at an alarming level. However, they have returned to a better position now due to the relaxation of the NPL rules.
Meanwhile, SOCBs are facing trouble due to weak management, continuous political interference, politically directed and motivated loans, adverse selection and moral hazards themselves.
The financial health of the SOCBs is now in a critical condition and their survival is dependent on the government’s intermittent capital injection. Thus, as state organisations, both the government and the SOCBs and the judiciary system have failed to protect the depositors and the credible clients’ interests, according to the analysis.
SOCBs expenditure
The expenditure-income ratio of state-owned commercial banks is almost always higher than private commercial banks. It means that the cost efficiency of the SOCBs is sustainably lower than private and foreign commercial banks, according to the analysis.
They have unnecessary costs and employees that are not serving any productive purpose. It also means that SOCBs have much scope to reduce costs in running their businesses by using alternative combinations of inputs.
Furthermore, it also shows that the deregulation did not improve the SOCBs’ financial health and competitive power by operation cost minimisation.
Why NPLs rising?
According to the analysis, NPLs in the country’s banking sector have risen due to mainly political reasons. Besides the political dimension, some other associated issues are deteriorating and intensifying this problem in the SOCBs.
These include inadequacy and weakness in the financial laws and judicial system of the country, weak supervision and monitoring capacity of BB which is also partly a result of the political reluctance and fiscal dominance, no incentive for better bank management, lack of professional commitments by the staff, lack of enough efficient staff, poor standard of services and products by the SOCBs.
