Specialised banks, DFIs open branches under pressure MoF approval to be made mandatory

Specialised banks, DFIs open branches under pressure MoF approval to be made mandatory

Published : Wednesday, 28 August 2013

Source: thefinancialexpress

The county's specialised banks and development financing institutions (DFIs) are opening branches in different places under pressure from various quarters without any prior feasibility study, sources said.

Most of the branches, opened under pressure from vested quarters, incur financial losses for years, they added.

With a view to reducing such practice, the ministry of finance (MoF) is likely to make its approval mandatory before sending proposals by these institutions to the Bangladesh Bank (BB) for opening new branches.

The MoF recently held a meeting on the issue where the representatives of different specialised banks and DFIs explained the reasons behind opening of branches more than the required ones.

They said they are compelled to open branches under political pressure in some places where operation of such branches is not economically feasible.

The MoF observed that many specialised banks and DFIs submitted proposals in every 2 to 3 years for recruiting new manpower.

A senior MoF official said such banks and DFIs remain dependent on the government's fund whenever they face crisis.

He said the size of the classified loans in most of these institutions is high. These have incurred significant losses years after years.

"These institutions open branches without considering businesses and professional aspects," the official said.

Another MoF official said Bangladesh Krishi Bank (BKB) has nearly 1,000 branches across the country and a good number of these branches have been incurring losses.

"The establishment of branches unnecessarily by these institutions drew our notice when we were reviewing a proposal on raising manpower for the BKB. We think such a large number of branches for a specialised bank are very much unnecessary. These were not opened considering business interests of the bank," he said.

According to the present policy when the board of directors of a bank decide to open a bank branch in a particular area, they send a proposal to the central bank for approval. After that, the BB carries out necessary assessment before providing approval for opening new branches.

The BKB was established under the Bangladesh Krishi Bank Order 1973. It mainly focuses financing in agricultural sector alongside conducting some commercial banking. According to its website, it has 998 branch offices.

Another specialised bank - the Rajshahi Krishi Unnayan Bank (RAKUB) started operation in 1987. The bank took over the operations of 253 branches of the BKB in Rajshahi and Rangpur divisions. Presently, the bank has 374 branches. It has 300 rural and 74 urban branches.

The Karmasangsthan Bank was established in 1998 with an aim of involving the unemployed people of the country especially the unemployed youths in the economic activities through self-employment opportunities for poverty alleviation. Presently it has 80 branches.

The Ansar-VDP Unnayan Bank started operation in late 1996 aiming at poverty alleviation of nearly 5.6 million Ansar and VDP members through self-reliance. Currently the specialised bank has 160 branches across the country.

The BASIC Bank Limited started operation in 1989. It has a blend of development and commercial bank but mainly focuses financing small-scale industries. Presently it has 62 branches.

The Bangladesh Development Bank Limited is a specialised bank which was formed in 2009 through merger of Bangladesh Shilpa Bank and Bangladesh Shilpa Rin Sangstha. It has 26 branches.

The Bangladesh House Building Finance Corporation (BHBFC) was established in 1952 to help ease crisis of funds in housing sector. It has 29 zonal and regional offices across the country.

Former Governor of the Bangladesh Bank Dr. Salehuddin Ahmed told the FE both the business aspect and people's interests have to be considered before opening branch of a bank or financial institution.

"They have to consider first whether the branch will be at least self-sufficient. Political pressure or interest of vested quarters should not be considered for opening their branches."

Mr Ahmed said the central bank has set some criteria for new branches. Those have to be followed strictly. "The Bangladesh Bank should not accept any bank's proposal without necessary evaluation."