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Bank & Finance - March 13, 2024

BB’s wrong message customers in panic

9 banks in red zone

Staff Correspondent : The central bank released the banking sector’s health index when the banking industry of the country is in a deep crisis. This message has intensified the fear of depositors and clients of banks not to continue business with the poor performing banks.
Considering the situation, the central bank thinks that 9 commercial banks of the country are at high risk. Based on the performance of the banks, the regulatory organization Bangladesh Bank has recently published a report. In the report titled ‘Banks Health Index (BHI) and Heat Map’, these 9 banks are placed in the red zone. Apart from this, 29 banks have been kept in yellow zone and 16 banks are in green zone. Out of the 9 banks in the red zone, 4 are state-owned banks.
The report is being prepared by the Financial Stability Department of the Central Bank on the basis of half-yearly performance. Banks in the red zone are essentially financially fragile. Banks in the yellow zone are in the middle. And the banks in the green zone are in a slightly better position in terms of index.
Bangladesh Bank has released the report at a time when merger and acquisition of weak banks with healthy ones is under discussion. Meanwhile, to get out of the red zone of regulatory institutions, these banks are offering reckless interest to the customers in collecting deposits.
In that case, some banks are offering interest up to 13-14 percent. As such, if the deposits are collected, these banks will have to give loans at 16-17 percent interest. Joining this competition, some non-bank financial institutions are also offering 17-18 percent interest on deposits. Some banks were already in liquidity crunch due to dollar appreciation, loan recovery slowdown and image crisis. They were collecting deposits with extra interest. Some banks are also promising to double their money in five and a half years. In that case, these banks are offering more interest than savings bonds and bonds.
Analysts say that there is no such business in the country, which can pay this deposit. Due to such reckless policy in collecting deposits, interest on loans is also increasing. In that case, the borrowers are in trouble. Bank borrowers including businessmen, industrialists will suffer especially. Apart from this, the policy of collecting deposits at such unequal interest rates by weak banks is also not a good sign. Because many will deposit in the bank without understanding the flashy offer. There is concern in that case. The customers who have deposited in the bank are also worried about the issue. Many are afraid of losing capital. Because the reckless policy of collecting deposits is very difficult for banks to earn extra interest by lending that money. On the other hand, Bangladesh Bank said that even if the weak banks are merged with the good banks, there will be no loss to the interest of its depositors. In a press conference yesterday, Bangladesh Bank’s Executive Director and Spokesperson Majbaul Haque said that the banks can voluntarily merge until December this year.
The former governor of Bangladesh Bank. Saleh Uddin Ahmed said in this regard, if you get a high interest offer, you cannot keep a deposit in any bank. In that case, you have to see how the bank or financial institution is.
It is known that some weak banks are adopting this reckless policy in collecting deposits for fear of merging with other banks. In that case, apart from openly offering interest, some are also offering to collect deposits in small messages. Some organizations are taking refuge in privacy. The interest rate is increased as the amount and term increases. 14-18 percent interest is being offered in that case. Meanwhile, the official interest rate of bank loans has also increased. After lifting the 9 percent interest rate pegged last July, it has already crossed 13 percent. Basically, the interest rate on loans is increasing if the central bank follows the new system. Bangladesh Bank has made some changes in the method of determining the interest rate due to the high increase in loan interest. At present, the base rate of loan interest is determined by the ‘Six Months Moving Average Rate of Treasury Bill’ or SMART method. An additional 3.75 percent interest is added to it. The banks determine the final interest rate of the loan.
The banks in the red zone of Bangladesh Bank are – Bangladesh Commerce Bank, Padma Bank, Basic Bank, National Bank of Pakistan, National Bank, Janata Bank, Agrani Bank, Rupali Bank and AB Bank. The banks in the yellow zone are 19 private banks and 8 Shariah-based banks, including the state-owned Bangladesh Development Bank and Sonali Bank.
In a press conference yesterday, Bangladesh Bank said that a decision will be taken on those who will fall into the vulnerable list as per the policy in March next year. Following the international practice, the policy will be formulated regarding the method and process of bank merger. Bank’s Executive Director and Spokesperson Majbaul Haque said that there are various speculations about bank merger. No matter the process by which banks are merged, there will be no loss of interest to the depositors. At the same time the interests of the investors will also be looked after.
He said that the banks which will be merged, the health of those banks will be checked by good audit institutes. Only then will the integration process begin. If the banks are merged, it will be done in a proper and transparent process. Merger will ensure that good banks are not weak and weak banks are good. Meanwhile, a delegation of Bangladesh Association of Banks (BAB), a bank entrepreneurs’ organization, met the central bank governor on March 4 regarding the news of bank merger. At this time, the central bank informed that 7 to 10 weak banks may be merged with strong or good banks within this year. If the weak banks do not merge voluntarily during this period, they will be forced to merge from next year. It was also informed in that meeting that Asset Management Company (AMC) will buy bad assets (loans) of weak banks. As a result, there is no danger of good banks going bad due to mergers. But the directors of weak banks will lose their ability to be directors of good banks.

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