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Attempt to misuse SME loans must be checked

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THIRTEEN banks have exceeded their annual SME loan disbursement targets in just six months; which seems to be suspicious in the eyes of the central bank. They disbursed 105 percent to 242 percent of their annual targets in January-June period of this year. It is good that the banks have disbursed a hefty amount of loans to small and medium enterprises but the central bank should keep watch on these banks to see if they showed other credits as SME loans. Moreover many remain skeptical whether such credit is being used as cover to grabbing loans by influential people closer to power corridor.

It needs extra care when default loans in the SME sector have increased by more than eight times in the last seven years. In 2016, Tk 22,494 crore out of the Tk 136,176 crore disbursed became defaulted; the amount of such default loans was only Tk 2,644 crore in 2010. The commercial banks should restraint the rise in suspicious banking to arrest the rising trend of default loan in the SME sector. For example, Exim Bank's disbursment target for the entire year was Tk 5,375 crore but it has already disbursed Tk 5,666 crore or 105 percent of the target in six months. Meghna Bank disbursed 200 percent of its annual SME lending target of Tk 265 crore in the period while NCC Bank achieved 242 percent of its target of Tk 900 crore.

Likewise Trust Bank has disbursed 115 percent of the target of Tk 600 crore and NRB Commercial Bank achieved 205 percent of its target of Tk 250 crore. The nine other banks that overshot their SME loan targets are Bank Al-Falah, Citibank NA, State Bank of India, Woori Bank, Modhumoti Bank, NRB Bank, City Bank, Bank Asia and Exim Bank.

On the other hand, 19 banks, including eight state-run lenders, could not reach even 50 percent of their SME loan disbursement targets in the first half of the year. Together, banks and non-bank financial institutions (NBFIs) lent 62 percent of their yearly SME loan target of Tk 133,854 crore in the first six months. The BB sat with banks and non-bank financial institutions in separate meetings between October 9 and 11 and asked them not to disburse loans excessively in the trading sector. Banks and NBFIs were also asked not to disburse more than 55 percent of their SME loans to the trading sector in a single year.  The central bank will not consider any loans exceeding the 55 percent threshold as SME credit.

SME financing does not contribute much to banks' profit but banks will have to concentrate more lending to small and medium enterprises which may grow as big business in future. But more such loans must not go to trading, the focus should be on productivity sector to produce new goods and create more jobs. In our view the central bank must strengthen monitoring to avoid fake loans under the SME cover.

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