As part of the ongoing probe to reform the country's ailing banking sector, Bangladesh Bank will conduct special audits of eight more banks, after Janata Bank, AB Bank, and Al-Arafah Islami Bank.
The eight banks are: One Bank, Eastern Bank, Mercantile Bank, NCC Bank, Shahjalal Islami Bank, BRAC Bank, Southeast Bank and Mutual Trust Bank.
Early this month, Bangladesh Bank conducted an audit to unearth loan irregularities at Janata, AB, and Al-Arafah.
Separate committees have already been formed last week with officials of the central bank's Inspection Division to conduct special inspections at all eight banks. The committees have been instructed to submit their reports by this month, said a senior Bangladesh Bank official.
The banks concerned will be audited on a set model that includes identifying each bank's top five lenders, top five bank loan renewals, top five interest waivers, and top five loan defaulters.
Afterwards, the inquiry committees will make specific recommendations to reduce default loans and take action against willful defaulters, the official added.
The process of loan applications, branch evaluation, head office evaluation, board approval or approval of the management authority, project inspection report, evaluation of collateral security, legal opinion, documentation, credit distribution, and other issues will also be scrutinized during the probe, a committee member said.
The combined bad loans of the eight banks concerned stood at Tk 6,873.62 crore as of December 31, 2018.
Former governor of the central bank, Salehuddin Ahmed, said a strong commission is needed to resolve issues plaguing the banking sector.
At the beginning of this month, Bangladesh Bank formed several committees, including a high profile one led by one of its deputy governors, in a bid to reform the country's ailing banking sector.
Furthermore, the committees will also recommend amending the Bank Companies Act, the Artha Rin Adalat (Money Loan Court), the Financial Institutions Act, and other bankruptcy-related legislation.
A policy for compulsory merger of weaker banks and financial institutions will also be drafted by a committee.
Calls for reform
At the beginning of this year, the government asked Bangladesh Bank to undertake banking sector reforms as part of the ruling Awami League's 13-point election manifesto pledge.
Prior to elections in December 30, 2018, the Awami League pledged to undertake an effective and sustainable strategy to lower NPLs and implement the Bankruptcy Act.
According to the manifesto, the central bank would keep interest rates under control without hampering the market system, by adopting specific strategies and taking initiatives to inspect the expertise and skill of banks in approving and disbursing loans.
The manifesto pledged to make the ongoing supervision and regulation of commercial banks and financial institutions more effective and powerful, effectively addressing banking fraud, including loan defaulters.
At the end of December 2018, total NPLs in the banking sector stood at Tk93,911.40 crore, or 10.30% of all disbursed loans.