Cenbank flags banks' data anomalies

• The central bankers pointed out the delayed submission of export data and inaccurate foreign exchange data by authorised dealer banks.
• Bankers have also been warned for not following the single borrower exposure limit as issued by the central bank last year.
• Banks have faced scrutiny for purportedly not meeting their obligations to disburse loans intended for the CMSMEs and agricultural sectors.
• Bankers said there is a chance of conflict of interest if telcos get digital banking licences and do banking business.
• The central bank told bankers that they will follow the guidelines on the digital bank issued on 15 June that allows telcos to involve in the digital banking.

The Bangladesh Bank has voiced concerns over significant anomalies in banks ranging from disparities related to outstanding and overdue LC information in contrast to the central bank's dashboard to instances of deliberately undervalued invoicing for tax evasion.

Also, the central bankers pointed out the delayed submission of export data and inaccurate foreign exchange data by authorised dealer banks.

These observations were outlined in a document from the central bank, which was prepared following a meeting between the chief executive officers of banks and senior central bank officials on 16 August. Bangladesh Bank Governor Abdur Rouf Talukder chaired the meeting.

The matter of unnecessary documentation for remittances up to $20,000 was brought to attention, along with banks falling short in maintaining proper ratios for advance-to-deposit, Cash Reserve Requirement (CRR), and Statutory Liquidity Ratio (SLR). 

Even more troubling, some banks were found to be offering remittance rates higher than the agreed-upon rates, raising concerns about unhealthy competition among banks and its consequent impacts on import payments.

Bankers have also been warned for not following the single borrower exposure limit as issued by the central bank last year.

AKM Sajedur Rahman Khan, one of the four deputy governors, pointed out an issue of banks failing to provide timely meeting minutes of their board meetings and other essential reports. 

He highlighted the gravity of the situation, as incorrect information from banks might reach entities such as the finance ministry, International Monetary Fund (IMF), and World Bank, potentially leading to distorted perceptions and decisions.

Banks have faced scrutiny for purportedly not meeting their obligations to disburse loans intended for the Cottage, Micro, Small, and Medium Enterprises (CMSMEs) and agricultural sectors. 

Moreover, banks have received directives to ensure the distribution of loans from the Bangladesh Bank's refinance and pre-finance initiatives. The gradual pace of progress in resolving legal matters concerning a considerable amount exceeding Tk2.12 lakh crore has also been a focal point of discussion.

Syed Mahbubur Rahman, managing director at Mutual Trust Bank, confirmed that the Bangladesh Bank has raised the issue of mismatch between banks' data and the central bank's dashboard.

"It (mismatch) can happen for different reasons, such as system transfer and inattentiveness," he added.

Banking leaders also raised several concerns during the meeting, addressing regulatory authorities on various matters. These included advocating against permitting telecommunications companies to enter the digital banking sector, expressing opposition to withholding tax on foreign loans, and urging for strict adherence to the established exchange rates across all banks.

Why banks oppose digital bank licence to telcos

Selim RF Hussain, chairman of the Association of Bankers, Bangladesh, said telecommunication companies provide infrastructural facilities and conventional and digital banks provide services to their clients by using their technology.

There is a chance of conflict of interest if telecommunications companies get digital banking licences and do banking business, said Hussain, also managing director of Brac Bank.

Syed Mahbubur Rahman of Mutual Trust Bank said telcos have more subscribers than bank accounts and they can be converted into digital bank accounts anytime.

There are more than 18 crore mobile phone users as of July this year against eight crore bank accounts.

"We'll be partners in providing banking services and telcos will get their fees and charges," he told TBS.

The Bangladesh Bank, however, told bankers that they will follow the guidelines on the digital bank issued on 15 June that allow telcos to be involved in the digital banking.

No more cap on spread

The question arose following the Bangladesh Bank's introduction of the Six Months Moving Average Rate of Treasury bill (SMART) as a reference lending rate in June this year. Subsequently, the central bank instructed banks to set lending rates by adding a 3% margin.

During the discussion, the managing director of Brac Bank sought clarification on whether they would need to adhere to a 4% spread – representing the gap between lending and deposit rates – after the implementation of SMART. 

In response, the central bank governor clarified that there would be no required spread moving forward.

This development was positively received, with bankers highlighting its potential to enhance banks' balance sheet management efficiency. Selim RF Hussain remarked, "It's a positive move as it will help banks manage their balance sheets efficiently. Also, banks will try to collect low-cost deposits."

Bankers said there would have been a negative impact on savings with lower deposit rates for eliminating the spread, but that will not be the case now as interest rate is on the rise in recent months. 

They said savers might seek alternative investments or financial instruments that offer higher returns if they get low returns on their deposits. 

Md Mezbaul Haque, spokesperson for the Bangladesh Bank, anticipates that the elimination of the spread requirement could attract more deposits into the banking system, as many banks are likely to offer higher interest rates to attract depositors.

What the governor told top bankers

Governor Abdur Rouf Talukder emphasised that it falls within the purview of bankers to effectively address the challenges of both over-invoicing and under-invoicing, which often serve as conduits for money laundering. 

He noted that considerable progress has been made in curbing over-invoicing due to the concerted efforts of the Bangladesh Bank, resulting in an 80% reduction. 

He expressed confidence that with the collaboration of banks, the remaining 20% can be effectively managed.

However, the governor pointed out a concerning trend in under-invoicing, where importers deliberately declare significantly lower prices for the products they import to evade taxes. These importers subsequently funnel the balance of the Letters of Credit (LCs) value through informal channels or hundi. In response to this issue, he urged bankers to exercise an elevated level of caution.

During the meeting, the governor conveyed to the top bankers that the volume of loans that have been rescheduled, restructured, or written off has witnessed an alarming increase. 

He underscored that in light of waning confidence in the banking sector, there has been a notable surge in cash holdings. 

The governor stressed the urgent need for bankers to exert doubled efforts in order to restore and rebuild the trust of the public in the banking system.