Most banks facing liquidity crisis since September 2018
Lenin Rahman: The rhetoric demand for ensuring single-digit bank loan for higher economic growth still in a term of book due to multifarious reasons including higher deposit rate, rising management expenditure and NPL, liquidity and provision shortfall, huge selling of national saving certificate and lack of economic window to legalize ‘ill-gotten resources’. According to Global Economist Forum (GEF), certain fund crisis is impeding to ensure single-digit bank loan as well as hindering the expected level of economic growth of Bangladesh.
Recently, the global forum disclosed in which it was reflected that Bangladesh needs over 8 percent GDP (gross domestic product) growth until 2030 to attain a mid-level status country.
Higher industrial output along with bumper food grain production could help achieving such status, indicated the GEF.
Single-digit lending facilities for the business community could help achieving higher industrial output, said experts.
Every economy has a window to legalise ill-gotten resources for preventing money siphoning from the country, they said. The lion share of untaxed money invested in national saving certificates causing the difficulties in collecting deposit for the private commercial banks in the country, they said.
Only the investment in national saving certificate has a window to legalise ill-gotten resources but which could be applicable other productive sectors like capital market and industrial sector, they recommended.
“This is not the question of encouraging black money to be whitening rather such policy would help preventing huge amount of capital flight from the country”, said a source.
According to a Daily Industry report, some 52 percent investments in bond have no legal source and huge amount of black money are whitening through buying of National Saving Certificates (NSCs) mainly for convenient way for the vested groups as they need not provide any authentic prove for source of income and additional tax to the government.
Another report of the renowned English daily of Bangladesh disclosed that US$9.7 billion capital siphoned from Bangladesh annually and $61.63 billion drained in a decade but fair democratic culture and good governance can check illegal money transfer.
However, the government is frequently borrowing from the saving certificates to meet budget deficit and to minimize regular expenditure which is also hampering to provide single digit loan, said industry insiders. Most of the private sector commercial banks have been facing liquidity crisis since September 2018.
Talking to Daily Industry on Tuesday, Exim Bank Managing Director Dr Mohammed Haider Ali Miah told that deposit rate is high which is differing from bank to bank but the average rate is now 10 to 11 percent. Along with this, the management cost is around 5 percent; he said adding the lower deposit rate or below 8 percent would ensure single-digit bank loan.
The existing deposit rate and management cost are not in favour of banks to provide single-digit loans for the stakeholders in the country, Haider Ali pointed out.
“We want to provide single-digit bank credit for further advancement of country’s economy, but, we are forcing to disburse higher lending rate. The lower deposit rate could help providing single-digit loan to facilitate the business community,” he pointed out.
Mamun-Ur-Rashid, Managing Director of Standard Bank said every bank has some obligation to collect deposit for ensuring sound financial health, and for this, sometimes bankers are forcing to offer higher rate to the depositors.
“If we can collect deposit at the rate of 6 percent or below, it would help disbursing single-digit loan for the economic development of the country”, he added.
He has underscored the need for keeping management cost within 3 percent to ensure single-digit bank loan.
Md Ehsan Khasru, Managing Director of (Padma Bank) Farmers Bank said the significant rise of NPL in recent months resulting capital and provision shortfall of banks.
A good number of banks are still facing liquidity crisis, he said adding the major investment are being invested in national saving certificate due to higher rate.
The saving schemes of the private commercial banks are poor compared with government saving instrument, as a result, the deposit collection of private banks are narrowing gradually. The depositor’s money is invested in the national saving certificates instead of the saving schemes of private commercial banks of the country.
He appreciated the finance minister AHM Mustafa Kamal to undertake effective measures to recover default loan of the banking sector.
“If it is possible to recover the stuck up loans, it would help providing single-digit bank loan for the further development of the economy”, said
The soaring Non-Performing Loans (NPLs), scarcity of investable fund and lack of good governance in the banking sector are major obstacles to bring down the lending rate to a single digit.
Syed Hasnat Habib, Managing Director of NRB Global Bank Limited said NPLs is a big challenge for the banking sector of the country.
Market competition, market rate, demand and supply of investable fund, regulatory compliance and operating cost are major obstacles in implementing the single digit interest rate on lending, he mentioned.
The interest rate could have been brought down to a single digit by reducing the spread between the interest rates on lending and borrowing, he pointed out.
Shafiul Islam, President of the Federation of Bangladesh Chamber of Commerce and Industry said the business community demanded single-digit loan for industrialization since long.
Several times, the government and the central bank asked to reduce the lending rate but it is not visible to avail industrial loans.
Dr Salehuddin Ahmed, former governor of Bangladesh Bank said already banks are facing liquidity crisis for inadequate deposit, default loan and provisional shortfall. Strong political commitment is needed to fix single-digit lending rate as well as to reduce NPL from the banking sector to attain vibrant economy of the country, Ahmed added.
The government along with the central bank should have to play more proactive role to ensure single-digit loans to facilitate stakeholders in the country.
In this backdrop, another Daily Industry report said, single digit interest rate in Bangladesh is still a term only in book, even after taken decision by the banks with the pressure of the government before seven months.
The Prime Minister Sheikh Hasina told the private bank owners to decrease the interest rate for bank loans in a meeting in April. However, most of the banks are not following the directive of Bangladesh Bank to decrease the loan interest rate and fix the spread, said the Daily Industry report.