Economists, during a discussion today, said the country’s banking sector is under threat due to lack of trust and good governance in banks.
Certain groups are influencing Bangladesh Bank’s regulatory decision-making, which is alarming for the economy, the economists added.
They made the observations at a discussion on ‘Managing the Economic Crisis’, organised by the Centre for Policy Dialogue (CPD), at a Dhaka hotel on Saturday.
Minister Abdul Mannan attended the event as chief guest while Professor Dr Rehman Sobhan presided over the function.
Former governor of Bangladesh Bank Dr Salahuddin Ahmed; economist Dr Ahsan H. Manur; former Chief Economist of World Bank’s Dhaka Office Dr. Zahid Hossain; Professor Abu Ahmed; Barrister Shamim Haider Patwari, Member of Standing Committee on Ministry of Law, Justice and Parliamentary Affairs; Rupali Haque Chowdhury, Managing Director, Berger Paints; Kamrul Islam, secretary of Bangladesh Garment Workers Solidarity, also spoke at the function.
Dr Salehuddin said, “If Bangladesh Bank can handle policy implementation rigorously, including defaulted loan collection, I believe the situation will improve.”
“But the central bank has to take the right policy independently, not look at anyone's face, as the current economic situation demands it,” he added.
Any delayed decision of Bangladesh Bank, and the situation will worsen, he said.
Citing an example, he said the total volume of non-performing loans (NPLs) has increased by more than three times in the last 10 years since 2012.
The NPLs increased over Tk 1.34 lakh crore in the first quarter of the fiscal year 2023 from Tk 42725 crore in the fourth quarter of FY2012, as per a report of the central bank, he said.
He said the economy is standing at a point where it has to have proper reforms or be ready to see its collapse.
Executive Director of Policy Research Institute, Dr Ahsan H. Mansur, said deposits in the Brac Bank grew 27 percent in the last month as people are looking for good banks for the safety of their money. “So, trust and good governance can save a bank.”
He said that rigorous and exemplary punishment for loan scams is needed to gain people’s trust, appointing an observer is not enough.
Dr Zahid said the inflation is not created by external effects, domestic demand and GDP is growing, it does not match with the economy.
CPD Executive Director Dr Fahmida Khatun placed a report titled "Managing the Economic Crisis: CPD's Policy Recommendation" at the event.
"Actual NPLs will be much higher if loans in special mention accounts, loans with court injunctions, and rescheduled loans are included," the report said.
The CPD mentioned that appointments of bank directors based on political connections, loans sanctioned on political grounds, rescheduling of loans despite poor record of repayment, and writing off loans to reduce the tax burden and clean balance sheets of banks are among the reasons behind the high volume of NPLs in the country.
Besides, the weak internal control and compliance risk management of banks, lack of independence of Bangladesh Bank, dual regulation by the Financial Institutions Division and the central bank, and flexibilities given to defaulters by the central bank are also responsible for the high volume of the NPLs, it said.