Welcome to Business Outlook
Related Articles
High level of default loans, failure to implement banking regulations, and limited autonomy for the Bangladesh Bank are the major challenges facing the banking sector today.
This prompted a number of former central bank governors and a top businessman yesterday to call for extending greater autonomy to the central bank and bringing down default loans.
Both the government and the BB should address the issues with utmost importance as a vibrant banking sector is crucial to accelerate the economic growth of the country, they said.
“Integrity in the financial sector is important to keep it stable,” said Wahiduddin Mahmud, an eminent economist.
Salehuddin Ahmed, a former BB governor, said that the country had achieved many economic goals, but discussions related to the problems faced by the banking sector had diminished.
“The BB is enjoying autonomy on paper. So, we should ensure its freedom to be operational.”
They made the comments at the Second Bangladesh Economic Conference styled “The Five Decades of Bangladesh’s Development Journey: Role of Central Bank” at the InterContinental Dhaka.
The Bonik Barta, a Bengali newspaper, in cooperation with City Bank organised the event.
Prof Mahmud said that many reforms had been brought about in the country’s financial sector.
“We did not know initially what types of regulations should be followed to operate private banks when the BB allowed them to roll out businesses for the first time,” he said.
Anybody can take over a bank by purchasing shares in a free market economy, said Mahmud, also a former professor of the economics department at Dhaka University.
The characteristics of banks are different from other listed companies as depositors keep their money with a trust, so rules and regulations of banks should have been stronger.
“We are yet to learn the regulations on how to prevent a family from taking over a number of banks. We will learn this as the country is set to become a middle-income country.”
Mashiur Rahman, economic affairs adviser to the prime minister, said non-performing loans (NPLs) in the banking sector had gone beyond control.
“If banks are unable to recover default loans and mobilise new deposits, the capacity of giving out loans by lenders faces a setback.”
He called non-payment of loans a social crime.
Up until September this year, NPLs stood at Tk 101,150 crore, up 14 per cent from nine months earlier and 7.1 per cent year-on-year, data from the BB showed.
“Banks will have to improve their skills to verify borrowers’ ability to repay loans before giving out loans,” Rahman said.
Banks also go through difficult situations to sell mortgaged assets of defaulters, the adviser said. “An effective bankruptcy act will solve the problem.”
Mohammed Farashuddin, a former governor of the BB, said that proper action should be taken against the scammers just after completion of a probe.
“Corruption starts to spread if a probe report is confined to a drawer,” he said.
He said a major portion of the stimulus packages, unveiled after the pandemic struck the economy, have gone to the large borrowers, depriving the small entrepreneurs.
“The issue should be dealt with importance.”
Farashuddin went on to urge the central bank to carry out a study to depreciate the local currency against the US dollar to some extent.
Salehuddin Ahmed said political influence should not be encouraged as it is harmful for the autonomy of the BB.
“The country’s financial norms are aligned with global practices. So, ensuring compliance is essential.”
Atiur Rahman, another former governor, said that the financial sector would have to move forward by overcoming the challenges of default loans and climate changes.
He requested the government to extend support to three sectors – agriculture, remittance and export.
He proposed the government give an additional one per cent subsidy to the remitters, including the existing two per cent.
“On top of that, the government should consider relaxing the investment ceiling of Tk 1 crore on the bonds dedicated to expatriate Bangladeshis.”
“This will help ease the pressure faced by the country’s balance of payments.”
Fazle Kabir, the current governor of the central bank, presented a keynote paper.
He described addressing and reversing the ongoing coronavirus-related economic shock and restoring growth momentum as major challenges facing Bangladesh.
Graduation from the least-developed countries’ group would be an achievement of immense pride, he said.
“It would also mean that LDC-related tariff exemptions and other benefits will be phased out gradually from 2026. So, it will require adequate preparation from all concerned, including the ministries and the central bank.”
“The challenges are steep but not insurmountable. Bangladesh has a strong track record that shows prudent policymaking and resilience of its people can take the country forward.”
AK Azad, managing director of Ha-Meem Group, said that if the government was willing, default loans would decrease.
The central bank has drawn up a rule, which sets a single borrower exposure limit in order to avoid loan concentration to a few people, he said.
But the influential borrowers have taken large amount of loans breaching the limit by managing the central bank’s permission, he said.
“If the exposure limit is strictly followed, default loans will decline, which will subsequently play a vital role in decreasing the interest rate on lending.”
“The managing director of Sonali Bank is present here and he has enough skills to run the state lender. But he is compelled to disburse loans on political consideration,” Azad said.
He believes that the economy would generate more jobs if required freedom can be extended to the BB.
Md Ataur Rahman Prodhan, managing director of Sonali Bank, said that a businessman had recently applied to the state lender to have rescheduled his default loans.
He has borrowed funds from 11 banks. Of them, 10 are private.
“The interesting thing is that all of his loans taken from the private lenders are unclassified. This means some people have a tendency not to repay the fund to a state lender,” Prodhan said.
Abdur Rouf Talukder, senior secretary of the finance division, Mashrur Arefin, managing director of City Bank, and Mohammed Monirul Moula, managing director of Islami Bank Bangladesh Ltd, also addressed the event.
(TDS)
