State Banks Struggle with Loan Recovery Challenges

Bangladesh’s state-owned commercial banks are demonstrating capability in lending, yet they continue to face significant obstacles in loan recovery, according to Bangladesh Bank Governor Dr Ahsan Habib Mansur. He voiced these concerns on Monday, 2 February, during Sonali Bank’s annual conference held at the International Convention City Bashundhara (ICCB).

Dr Mansur highlighted that structural constraints within state-owned banks impede their operational efficiency. “When loans are extended to the right borrowers, default rates decline,” he said. “However, due to regulatory and institutional limitations, state banks exercise caution in lending. While they possess the capacity to issue loans, the process of recovery remains complex.” He noted that such limitations were also evident before 2000, reflecting a longstanding structural challenge.

The governor emphasised the importance of directing deposits into economically productive sectors. While Sonali Bank has adopted a cautious approach to lending, he noted that targeted investment in specific sectors could stimulate economic activity and increase overall financial returns.

Dr Mansur also critically addressed the underutilisation of consumer credit. “In many countries, consumer credit forms a significant component of banking activity. In Bangladesh, however, state-owned banks contribute minimally in this area. Housing finance exists but is limited. There is substantial scope to expand consumer lending,” he remarked.

Regarding Sonali Bank’s commercial operations, he observed, “The bank is partially fulfilling the role of a full-fledged commercial bank. Transforming it into a fully operational, profitable commercial institution is essential.”

Key performance indicators from the bank’s operations last year were presented as follows:

Dr Mansur reminded that, if the government chooses, Sonali Bank could be managed independently as a leading commercial bank, provided future administrations continue to support this initiative. He added that the bank could play a strategic role in managing remittances from expatriates and in financing the export sector.

In conclusion, the governor underscored the importance of targeted lending, particularly to rural entrepreneurs and small and medium-sized enterprises (SMEs). “Identifying reliable capital ventures and providing focused support to SMEs is critical for effective banking and sustainable economic growth,” he stated.