Dhaka Courier

Three new banks join an already crowded, struggling sector

img

Bangladesh Bank on Sunday approved 3 more commercial banks, which are now poised to join the already saturated banking sector in the country. With the latest approval of these additional banking institutions, the total number of public and private scheduled banks now stand at 62, a figure which many experts in the sector believe is too many for the size of the Bangladeshi economy.

The three banks, Bengal Commercial Bank, Citizen Bank and People's Bank, however are required by the authorities to have a higher paid up capital than that of the last generation of banks, with the paid-up capital set at Tk. 500 crore for each of the new institutions, which is about Tk. 100 crore higher than before, and set considering the size of the economy and in the best interests of the depositors, according to Bangladesh Bank Executive Director Abu Farah Md Naser.

A total of nine banks were approved in the last round of approvals for new banks back in 2013, and none of the nine 3rd generation banks are currently doing well in the market. Banking experts attribute the lax monitoring of the central bank coupled with aggressive lending by the banks and their tendency to violate regulations for their dismal performance, which has already made things very difficult in the banking sector as a whole.

To add to these regulatory and monitoring issues, the new banks have always had a difficult time in setting a name for themselves in the market and have been regularly associated with having higher expenses compared to the older institutions as they have had to spend much more to bring in experienced human resources in addition to much more expensive rented offices in order to stand out in the market.

In addition to these newly licensed banks, in October last year the central bank approved Community Bank Bangladesh, and had subsequently sent back proposals for these three proposed banks due to lack of adequate documents for licenses. However, the central bank has recently changed its stance and decided to award the new licenses subject to the 3 new banks depositing their paid-up capital within the next 6 months.

Bangladesh has the 8th highest geographic concentration of commercial bank branches globally according to research done by CPD in 2018, if microstates that have a land area less than 1000 square kilometres are disregarded.

According to the new finance minister AHM Mustafa Kamal on Monday said that granting licenses to three new banks are justified and he added “They (central bank) may have felt that there was a necessity and gave the nod based on it.”

However, many experts and economists point out that giving out 3 more licenses for banks shall put the already struggling banking sector into further difficulty. There is already a high level of competition in the market in the sector and the newly formed banks have been struggling with high levels of loan defaults and issues with liquidity.

The total non-performing loans in the sector stood at Tk. 99,370 crore last September, which is about 11.45 percent of all the outstanding loans according to data from Bangladesh bank.

The default loan amounts have been sharply increasing since the start of this decade. In 2014, the default loan amount increased to Tk. 57,290 crore, or 11.60% of the total disbursed loans. In 2015, bad loans again dropped slightly to Tk. 54,708crore, but increased to Tk. 65,731 crore in 2016. However, since 2016 the non-performing loans have been growing sharply with Tk. 80,307.21 crore in 2017.

  • DhakaCourier
  • Vol 35
  • Mishel Khan
  • Issue 33
  • Three new banks join an already crowded, struggling sector

Leave a Comment