State-run Bangladesh Development Bank Limited (BDBL) took birth through unification of two troubled financial institutions – Bangladesh Shilpa Bank (BSB) and Bangladesh Shilpa Rin Sangstha (BSRS) – nearly one and a half decades ago.
The BDBL kicked off its commercial operations on 3 January 2010. It emerged as a success case of merger between two financial institutions, but failed to thrive in business. In the aftermath, it has been starving for several years.
The BDBL commenced its journey with the burden of default loans of BSB and BSRS, and became fragile with the course of time due to the unabated trend of defaults. Therefore, it never succeeded in business.
The bank has still been afloat thanks to the income from share trading and building rent. It even made big losses from its investments in the stock market.
The banking sector regulator, Bangladesh Bank, had appointed an observer to the bank’s board of directors, in a recovery initiative, but it did not bear any fruits.
Recently, the BDBL has decided to merge with state-run Sonali Bank as per the advice of Bangladesh Bank, and its board of directors has already endorsed the move. The process of merger will begin upon the issuance of formal approval from the central bank.
The BDBL stands as a vivid example of how a decision of merging banks or financial institutions may become wrong or counterproductive in some cases.
Despite the merger, the authorities did not appoint an efficient management to the bank, and launching new branches and approval of loans on political considerations remained unabated.
The regulating agencies and supervising bodies kept mum in all these cases. In consequence, the bank is now suffering as one-third of its total disbursed loans are in default.
Habibur Rahman Gazi, managing director (MD) of BDBL, blamed several factors for the current situation. During a conversation with Prothom Alo, he said the BDBL was formed anew, but it retained the officers of the old banks who were inexperienced in lending commercial loans.
As a result, a large amount of loans were approved within a short period and those mostly fell into default due to lack of proper verification. Moreover, the bank did not succeed in business due to unplanned opening of new branches. All these issues translated into a higher default rate in the bank, compared to others. However, the default rate declined to 34 per cent in March, he added.
The BDBL MD further said, “We don't have a capital deficit, while other indicators are also fine. The bank holds enormous assets. Now, the merger is a government decision. I hope these assets will be properly utilised once the bank is merged with Sonali Bank.”
BDBL mired in default loans
The BDBL had a deposit base of Tk 28.31 billion in 1018 and it declined to Tk 24.21 billion in 2020. It increased somewhat to Tk 29 billion in 2021, to Tk 29.14 billion in 2022, and to Tk 30 billion in 2023.
On the flip side, the amount of total disbursed loans was Tk 19.3 billion in 2018 and it rose to Tk 24.79 billion in 2022, before going down slightly to Tk 23.13 billion in 2023.
The bank has consistently been maintaining high default rates. Its default rate was 46 per cent – Tk 8.89 billion – in 2018 and it rose to 42 per cent – Tk 9.82 billion – in 2023.
However, the rate declined to 34 per cent as claimed by the bank authorities. All efforts to recover from the default loans are going in vain.
The bank had 44 branches across the country in 2018, which has now increased to 50.
According to BDBL sources, the bank earned Tk 750 million from the capital market in 2022, which is nearly double the amount it earned from traditional banking activities. Its net income from banking operations amounted to Tk 390 million in the year.
The bank has two subsidiaries – BDBL Securities and BDBL Investments – for capital market trading. Also, it holds a 25 per cent stake in the Investment Corporation of Bangladesh (ICB).
Multiple officials of the BDBL told Prothom Alo on the condition of anonymity that aggressive banking nature and inexperienced manpower invited the current misery to the bank. Also, the central bank did not take any effective measures to put the bank in order.
Nurul Amin, former chairman of the Association of Bankers, Bangladesh (ABB), said the BDBL did not have the required management and professional capacity to succeed. Hence, it could not perform better even after the merger.
“If the Sonali Bank plans to improve the BDBL, using their own technology and expertise, it seems possible. But it won’t be possible if any decisions are taken on political considerations, or going against the rules. It is crucial to have goodwill to make a bank successful,” he explained.
* The report, originally published in the print and online editions of Prothom Alo, has been rewritten in English by Misbahul Haque