Recent government measures aimed at healing the ailing banking sector were neither sensible nor constructive, instead the authorities have been just sweeping the financial problems under the rug, said Ahsan H Mansur, executive director of Policy Research Institute of Bangladesh.
Mansur, also an independent director turned chairman of BRAC Bank, came up with the observation in a recent interview with New Age at PRI office in Dhaka.
He mentioned that the government recently adopted several ‘wrong policies’ which only portend danger for the embattled banking sector as they might lead to some fresh risks.
Firstly, the introduction of rescheduling facility for the defaulters with a mere 2 per cent down payment, longer maturity period and lower interest rates are far more generous than the terms that compliant borrowers are getting. The sweet deal for the repeat defaulters provides them with far lower down payment and interest rates than the usual rescheduling policy of the banks dictated.
As a result, many borrowers with regular payment records have already stopped making regular installment payments in order to avail the golden opportunity on the ground that they did not have payment capacity. This problem, if intensified, may lead many banks, even those with good financial performance records, into troubled waters, he said.
Secondly, the policy to administratively limiting/fixing lending and deposit rates at or below 9 per cent and 6 per cent is an imprudent one.
‘We all would like to see interest rate structures in Bangladesh come down to single digit levels since such single digit interest rates are necessary for the betterment of the country’s economy as well as for the benefit of the business entities,’ Mansur said.
But, he added, ‘The prevailing conditions in the banking system, overall macroeconomic environment and certain government policies, would not allow us to achieve the desired interest rates structure through a market-based system and such a policy must not be implemented by giving orders.’
‘There are certain effective ways of bringing down interest rates in the banks, he said, but we are not following those. He questioned how bank deposit rates could be brought down to 6 per cent given the existing high inflation rate. Every country that has low interest rates also has the track record of low inflation rate. Banks could offer customers 4 per cent deposit rate if inflation could be brought down to 3 per cent,’ he said.
The PRI executive director also questioned how the bank would get fund by offering a customer 6 per cent deposit rate when the government was offering 12 per cent interest against investments in national savings certificates.
Banks were bound to offer at least 10-11 per cent against fixed deposits in order to meet their fund requirements, Mansur said.
Until or unless the interest rates on national savings certificates or NSCs, a much secure investment than banks, was reduced, deposit rates in the banks couldn’t be brought down to 6 per cent as bulk of the fund would flow towards the government securities, he said.
The government managed to collect an additional Tk 2 trillion (two lakh crores) by selling NSCs in the last five years, compared with less than Tk 0.5 trillion collected since the time before independence of Bangladesh in 1971. Due to the very attractive and above-market interest rates offered by the NSCs, the banking system lost about TK 1.75 trillion of assets in the last 5 years, he said, adding that a dual policy should not be applied to a single market. And continuation of such policy could mean disaster for the financial sector, he feared.
Earlier, sales of NSCs stood between Tk 5,000 and Tk 7,000 crore a year which at present increased to around Tk 55,000 crore, thus resulting in a sharp fall in deposit and lending growth in the banking sector, he said.
Mansur also cautioned about the problem of concentration of ownership and concentration of loans in Bangladesh. The ownership of multiple financial institutions by a single individual or family and accumulation of a huge amount of loans by single borrowers were also harmful for the banking sector but the regulator and the government have been overlooking these issues.
It is a matter of concern because the banking sector could fall into a state of insolvency if the individuals with large loan portfolios flew out of Bangladesh or became insolvent after laundering their money in other countries, he said.
Although there were strict legal provisions to prevent excessive concentration of financial institutions’ ownership or for exceeding single borrower limits by individuals or firms, these were conveniently overlooked by the regulators, Mansur said.
Talking about the non-bank financial institutions, Mansur said that the crisis became much deeper in the NBFI sector.
Although the government declared only one entity as insolvent, it already listed several other NBFIs which were in the same state of financial crisis, he said, adding that most NBFIs were suffering from liquidity crunch and only a few NBFIs, perhaps no more than 4-5 good ones, would be able to repay clients’ money on demand, a reflection of insolvency of those entities.
Crisis in the NBFI sector could lead the banks to the same path as the NBFIs borrowed heavily from the banks for extending credit facilities to their clients, the seasoned economist said.
Apart from these, Mansur also mentioned excessive number of banks, dearth of quality senior bank managers, and the much-needed technological transformation to improve the quality of the services and to ensure cyber security and other major challenges facing the banking sector.
In addition, allowing new banks had also been increasing the likelihood of the future problems of the country’s banking sector, he said.
‘We have witnessed from time to time some positive intentions of the government to address the banking sector issues, like several very positive statements made by the honourable Finance Minister during the budget speech. Unfortunately, these positive statements were not at all reflected in the subsequent statements and activities,’ Mansur said.
For instance, the government high-ups publicly announced the possibility of rescheduling the large defaulted loans of entities like Hallmark. This organisation had no identity as a proper business enterprise, only known for siphoning out Tk 4500 crore from banks through fraudulent papers, he said.
‘These types of companies and the associated perpetrators should be tried under the criminal justice system and people responsible should be put behind bars and should never be rehabilitated through rescheduling,’ he said, adding, ‘We are yet to witness any constructive and sensible move on the part of the government to turn around and address the situation in the banking sector.’
Instead, the moves which we so far observed seemed rather devoid of any ethics and only encouraging artificial accounting to hide the real picture, which had dealt a blow to the image of the banking sector and that of the associated regulators, he said.
‘So far we have witnessed moves or announcements aimed at putting things under the carpet and giving absolutely wrong signals to the perpetrators or wrongdoers,’ he said.
Speaking about the recent press reports on the Chinese authorities cautioning their banks and business enterprises regarding several Bangladeshi banks, he said such press reports could have contagion effect and thereby tarnishing the image of Bangladeshi banks in the international financial community. Such negative reporting would make it difficult for the local banks, even the good ones, to do business with the international banks and would certainly increase the cost of doing business internationally.
‘The banking sector was performing a bit better amid sorry state of the other pillars of the financial system — capital market, bond market and insurance sector. If the banking system starts faltering, the economy is bound to suffer. No country in the world can grow with a very weak financial system. We basically have only one reasonably stable pillar — the banking sector — out of the four pillars in the financial system, and we must not allow that to crumble as well,’ Mansur said.
Speaking about the government’s economic plans, the economist said that the plans were very nice and well thought-out but there was a huge gap between the plans and the implementation of their underlying policies.
‘To ensure funding for the development, reforms must take place in the revenue collection system,’ he said, adding, ‘Instead, we have observed a virtual collapse of the tax management system.’
Speaking about the expenditure management, the BRAC Bank chairman said that the people had been deprived of value for their money as the system had become corrupt as if the poacher had turned into the gamekeeper.
Asked about the government’s GDP growth claim of 8.13 per cent in the fiscal year 2018-2019, the economist said, ‘Although the government claimed an all-time high real GDP growth, revenue growth fell to all-time low and it is the first inconsistency.’ We all know that high economic growth leads to higher revenue growth in all countries including Bangladesh, but why that did not happen in Bangladesh, he asked.
Additionally, private sector investment remained stagnant in relation to GDP and machinery imports fell by double digit in the last 12 months, he said.
Import growth of all items, except for oil and liquefied natural gas, fell in the recent times, he said and hastened to raise the question as to how this could happen in a vibrant economy.
Besides, private sector credit growth remained low, export-to-GDP and remittance-to-GDP ratios had been falling in recent years, he said and added that these indicators made one raise the most pertinent question — ‘what is going on in the country’s economy.’ We have seen in our next door India, how Modi government’s dream to transform India into a $5 trillion economy during its current tenure has fallen flat on its face with growth rate plummeting to mere 5% from 8% rate reported in the pre-election period.
Asked about his challenges as he was entrusted with chairmanship of BRAC Bank, Mansur said that upholding the existing performance and transforming BRAC Bank into a global standard bank, a long cherished dream of its founder chairman Fazle Hasan Abed, would be the two major challenges for him, given the existing polluted state of the country’s banking environment.
Taking BRAC Bank to a global standard would be a long-term challenge and it could be done in another 10-12 years if consistent efforts were made, the seasoned economist said.
Asked about the strength of the bank, he noted that the role of board of directors has been a major strength of BRAC bank as the board members consistently upheld the interest of the organization.
‘Since I was appointed as independent director in May, 2017, I have never seen board members taking any decision in their personal interest. Every decision taken was in the interest of the Bank’, he said.
Besides, Mansur mentioned that the BRAC Bank’s experienced management team was its strength along with the entity’s zero tolerance policy against any irregularities.
Small and medium entrepreneur-centric loan portfolio was a distinct hallmark of BRAC Bank as it managed to establish a functional structure by keeping non-performing loan at 3 per cent, he said.
The SME portfolio constituted about 40 per cent of the bank’s total loan portfolio and the Board wants to expand SME lending to 50 per cent of BRAC Bank’s total portfolio, he said.
Speaking about the future, he mentioned that the BRAC Bank emphasised the upgrading of its technological platform to emerge as a modern bank providing higher quality customer services. Only by serving the clients promptly and efficiently, using the new technological platforms, the Bank will be able to attain the desired reduction in cost of its operations and at the same time ensure high level of customers’ satisfaction.
BRAC Bank has already established a modern innovation lab where young people with fresh minds were assigned to improve banking related processes more efficiently.
Besides, BRAC Bank is in the process of launching its Agent Banking operations in a much wider scale by way of introducing mobile app-based applications with a view to providing all sort of deposit and lending products to the unbaked population of the country. This is one of BRAC Bank’s core mandate along with serving the SME sector.
‘To accomplish all the goals, the Bank has been developing various applications and a planned expansion should take place within a year,’ he said.
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