Strong political commitment is time befitting demand to boost financial sector contributions and to gain 8.2 pc GDP
Abu Sazzad: The current trend of financial sector performance is spreading a ray of hope to revamp business and economic activities, but the sluggish banking sector contribution to the most impact oriented sectors in achieving the targeted 8.2 percent GDP growth for the current fiscal.
‘Impact sector’ comprising is contributing highest role to gain GDP growth
According to the Bangladesh Bureau of Statistics (BBS) data, the financial sub-sector’s growth dipped to 4.46 percent in FY 2020 from that of 7.38 per cent in FY 2019. Its contribution to GDP was 3.39 per cent in FY 2020, which was 3.42 per cent in FY 2019.
Meanwhile, country’s capital market accounted for 9.2 percent of the Nominal GDP in Jun 2020, compared with a percentage of 13.5 percent in the previous year.
According to the available data, the insurance sector contribution to GDP is 2.1 percent, calculating the lowest contribution in South-Asian countries. A recent report of the Daily Industry disclosed that the business of the insurance sector declined by 70 percent due to the adverse impact of the COVID-19 pandemic.
Experts pointed out that banking sector is playing a pivotal role for achieving the steady growth in the last couple of years, but the current trend is raising concern for revamping business and economic activities accordingly in the post virus pandemic period as well as to pose threat for attaining long term economic sustainability.
According to Bangladesh Bank data, the private sector credit growth was 9.36 percent in August last which was far below from the monetary target of 14.8 percent. Industrial sector is one of the leading sectors to attain higher export income, but the industrial loan declined by 57.20 percent in the last quarter, posing serious threat to generate more employment in the country.
Meanwhile, the small, cottage and micro stakeholders are facing severe economic hardship to restart their existing business, hindering the income generation process of the rural people in the country.
According to a recent report, the rural economy is completely ruining for poor business and economic activities of the Banking and Micro Finance Institutions. Sources said, even the affected farmers are not getting their adequate financial support from the banks.
However, the contribution of financial sector to country’s gross domestic product (GDP) is constantly declining due to lack of strong political commitment. Experts predicted that the upcoming year, such contribution may decline further due to liquidity crisis of the financial sector, but, strong political commitment can ensure higher financial contribution to GDP and economic growth of the country.
Industry insiders said, the activities of the financial sector hampered since March this year, causing lower contribution to economy. They have expressed their deep concern for declining the growth of the financial sector, affecting expansion of the private sector and employment generation in the country.
The government has failed to properly handle the financial sector which is threatening the overall success; they said adding that currently, the financial sector is facing multifarious challenges including weak management, poor governance and lack of strong leadership.
Financial sector especially, the banking sector is the nerve of the economy, but the sector is facing various challenges including higher NPL, capital and provision shortfall and money siphoning.
Despite allowing over Tk 50,000 crore rescheduling facilities in the last year, the banking sector is still facing capital and provision shortfall. Apart from this, the central bank recently allowed a good number of policy measures to improve the liquidity position, but still many banks are failing to provide the banking services accordingly, he added.
Former Bangladesh Bank governor Salehuddin Ahmed said that the banking sector failed to recover from the vulnerable state in the ongoing fiscal. Apart from the banking sector, the capital market is failing to gain trust of the investors due to poor regulatory framework; he said adding that the overseas investor withdraws money from capital market which is another failure of the financial sector.
Besides, the insurance sector also fails to regain public trust. He recommended for reforming the financial policy to ensure higher contribution for gaining the steady growth of the country.
Distinguish Fellow of the Centre for Policy Dialogue (CPD) Dr Debapriya Bhattacharya said that growth rate of the financial sector might even drop further, if the NPL provisioning method is followed perfectly.
“I think the state of the country’s financial sector is much vulnerable than it is reflected in the BBS data. If the NPL provisioning method is made perfect, the real banking profit will fall further, and its growth will also plunge. If the higher volume of NPL continues, the banks’ paid-up capital will be affected, and they will suddenly fall, he added.
He said that the recent scams, irregularities, and people’s mistrust on financial institutions severely affected growth of the sector. The country’s financial sector, especially the banks, has been experiencing hard times with the highest amount of NPLs, poor private sector credit growth, lower net profit, provisioning of the highest amount of classified and non-classified loans, the Bangladesh Bank’s (BB) reserve heist, and liquidity crisis etc.
However, experts have underscored the need for undertaking more effective steps to revamp the financial sector including the banking sector, capital market and insurance industry for contributing more to the GDP growth of the country.