Takeover Loans Weakening Banking Sector

 Loan takeover in Bangladesh
It has already been 48 years since we got our independence.  So, our banking industry has also a long history of 48 years. But, where are we standing? There are sixty (60)) scheduled banks presently working in the country, several others yet to start their operation. Though the existing ones are fighting with each other for profit generation opening new banks will worsen the situation. How many banks do a country need? There is no straight formula to answer this question but anyone can understand if he has minimum knowledge about the economy. Every year new banks are opening to contribute to the economy. But, the question is whether new entrepreneurs are increasing extensively to get benefit from banks. In most of the cases, the banks are unwilling to help the new entrepreneurs rather than taking over the loans of existing businesses. This unhealthy trends in banking make it more vulnerable as the take over loans become defaulted. 

Many economists have already discussed the resent situation in the banking industry. But nobody heed upon their concern about the issue as more powerful persons is involved in the ownership of banking. For instance, Mr. Md Akhtaruzzaman, director-general of the Bangladesh Institute of Bank Management (BIBM) said: "Due to the unhealthy competition among the banks on loan takeover, lenders provide money to borrowers beyond permissible limit". This take over process is more like bidding then providing banking services to the customers. Though some of the businessmen are getting benefits in most cases the reason is fake. 

If you check the previous years, you will get that most of the banks invested in the existing businesses rather than the new ones. The ratio is almost 80:200. Even though the credit growth was good enough, the country remains import dominant economy. It shows only a few new businesses have established during the previous years. 

Bangladesh Bank, the central bank of the country, has minimum guidelines on taking over loans. The central bank should guide the situations when a loan should take over, otherwise takeover loans may not perform as desired. Moreover, the loan appraisal process in our country is not well structured. Most of the credit analyst has the basic knowledge of credit and mostly depends on the mortgage to make credit decisions.  They forget mortgage is only the secondary security against the loan. Sometimes, the overvaluation of property makes it more vulnerable. 

Even though the NPL is increasing every year, the profit of the banks is growing as well. Bank owners are creating pressure to make more profits to the management. Although there is a maximum limit of profit in an existing state. Banks are making a profit beyond that limit. Now it's time for the central bank to fix the profit target for each bank so that the unhealthy competition stops. Otherwise, it's not so the far when the country will face a devastating situation in the banking industry.

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