The PCBs have also been plagued by identical loan default problems. The persistent default problems, the rapid increase in the level of outstanding loans, inefficient management, corruption among the bank officials and employees and the deterioration of customer services in the NCBs led the GOB to allow operations of private commercial banks in 1983. There has been mushroom growth of PCBs in Bangladesh during 1990s and there are now 30 PCBs, some of which are owned by the loan defaulters of the IDFIs and NCBs. The PCBs provide, apart from deposit taking activities and short term loans to borrowers. They also provide long term industrial loans to the borrowers but their long term lending activities are in no way as large as those of the NCBs.

Regardless of their ownership in private hands and operational independence, PCBs suffer from a number of problems including high loan default which contributed to their failure to meet capital adequacy requirements. The amount of PCBs bad loan was Taka 41.47 billion in September 2003, and six PCBs have written off 90% of the total bad loans accrued until that time. It was reported that Pubali Bank written off Taka 1.63 billion , Uttara Bank Taka 3.24 billon, AB Bank Taka 1.32 billion, City Bank Taka 2.03 billion, Islami Bank Taka 1.35 billion and IFIC Bank Taka 2.98 billion.

The PCBs are also plagued by insider lending. The directors of the PCBs not only obtain loans for their own enterprises but also get loans for their friends at low interest rates by abusing power and exerting undue influence over the loan approving authority.

Professor Muzaffar Ahmed (1997) found that a few directors of PCBs have resorted to ‘benami’ loans and willfully defaulted so as to classify their loan as doubtful. It certainly adversely affected profitability of banks and distorted the balance sheets. On the other hand, income effect and