A lack of good governance, transparency and accountability along with regulatory bodies not being able to carry out their duties properly is pushing the country’s already struggling banking sector towards crisis, said the Center for Policy Dialogue (CPD).
“Bangladesh Bank has lost its ability to work impartially due to not being able to carry on its duties independently,” CPD Executive Director Dr Fahmida Khatun said at a discussion meeting titled “What Lies Ahead for the Banking Sector in Bangladesh?” held at the capital’s Lakeshore hotel on Thursday (23 May).
“As a result, the policy of interest rate, bank license, interest waiver, and rescheduling of defaulted loans is being imposed from outside Bangladesh Bank,” she added.
“The banking sector is gradually weakening due to lack of institutional capacity and good governance, weakness in control, legal complications and lack of information,” Dr Fahmida Khatun said.
Urging long-term integrated initiatives instead of sector-based temporary initiatives to overcome the situation, she said, “It will not be possible to revive this sector without strong political determination and highest level guidance.”
CPD has urged the formation of an independent banking commission to ensure transparency in loan disbursement, appointment of bank directors and to quickly resolve the ongoing cases in the court.
“The amount of defaulted loans in the banking sector has increased three times from Tk42,725 crore in 2012 to Tk1,45,633 crore. Apart from this, adding the Tk44,493 crore written off and rescheduled Tk2,12,780 crore as of 2022 brings the total amount of bad loans to Tk3.78 lakh crore,” Dr Fahmina Khatun said.
“More than Tk1.78 lakh crore are currently stuck in more than 72,000 pending cases in the court, no one is sure when this money will be available,” the CPD executive director added.
She said, “The amount of defaulted loans is gradually increasing. Initiatives should be taken to overcome the weakness.”
Stating the decrease in the liquidity ratio of the banks is due to defaulted loans, she said, “The cost of all types of business is increasing. Although the interest rate is held responsible for the increase in cost, the issue of defaulted loans does not come into discussion. The reality is that banks have to cushion some money before disbursing loans in case of defaulted loans.”
“Although defaulted loans are usually high in government banks, recently the number of defaulted loans has increased in private banks. As a result of this, besides the provisioning deficit in the bank, there is a liquidity crisis,” she added.
She said that the provisioning of banks was Tk79,679 crore against the requirement of Tk98,941 crore during October-December last year. Accordingly, the banks’ provisioning deficit was 19.5% at that time.
During this period the share of public sector banks was almost equal in the total provisioning deficit of Tk 19,261 crore, Dr Fahmida said.
She further said that excess liquidity in the banking sector fell to Tk162,000 crore in February last year, which was Tk232,000 crore in June 2021.
Rate of excess liquidity against the total liquidity of the bank has decreased from 52% to 37%, she said.
“Even if the interest rate increases in the banking system, the interest rate of deposits is much lower considering the inflation. A review of average interest rates and inflation rates showed that the real interest rate on deposits fell to -4.7% in 2020 from 0.03% in 2020,” she said.
Commenting on the lack of information in the banking system, Fahmida said, “Although bankers are supposed to provide their performance information on the website, much of the information related to Basel III is not being disclosed.”
“There is scepticism among people about the information that is being published,” she added.
Criticising the restricting of journalists' access to the Bangladesh Bank, the CPD executive director said “Most of the information that is coming to the central bank is not reaching the common people.”
"We depended on the media for the free flow of information, that too is coming to a halt," she added.
At this time Dr Fahmida Khatun also said all the information should be digitised so journalists will not have to go anywhere for information.
Commenting on the recent mergers of banks, she said, “Merger is being forced as a temporary initiative without a strategic plan and a clear roadmap. In many countries, when a bank is performing poorly, other banks offer to buy it. Merger is not forced anywhere.”
“Merging two banks will not solve the problem. Those who are working should also think about job integration, job culture, professional culture, technology integration, and information security,” she further said.
Speaking at the vent, CPD Distinguished Fellow Professor Dr Mustafizur Rahman said, “If the condition of the banking sector is good, the economy of Bangladesh will also be good.
"If there is a challenge in this sector, it will have a multiplier effect on the overall economy,” he added.
Barrister Anisul Islam Mahmud, former planning minister MA Mannan, former Bangladesh Bank governor Dr Salehuddin Ahmed, eminent economist Ahsan H Mansur, former banker Nurul Amin, BGMEA Vice President Arshad Jamal Dipu and journalist Syed Ishtiaq Reza were present at the event.
