Crisis in banking sector not for pandemic or war

Staff Reporter :
Speakers at a dialogue on Saturday said that the country’s banking sector has been destroyed as a group is slowly devastating the banks and as such, the crisis in the banking sector is not the result of the Covid-19 pandemic or Russia-Ukraine war, Rather, the weakness of this sector is long-standing.
The British did not loot as much money as it is being done in the country’s banks, they said while speaking at a dialogue on ‘Managing the Economic Crisis: CPD’s policy recommendation’ organised by Centre for Policy Dialogue (CPD) at BRAC Centre in Dhaka.
Unveiling a report on the country’s economy, the CPD showed that 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 to Tk 1,343.96 billion in the first quarter of the fiscal year 2023 from Tk 427.25 billion in the fourth quarter of FY 2012, the report reads.
“However, actual NPL will be much higher if loans in special accounts and rescheduled loans are included,” it said.
The CPD mentioned that appointments of bank directors based on political connections, loans sanctioned on political grounds, rescheduling of loans despite the 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 the NPLs in the country.
Besides, the weak internal control and compliance risk management of banks, lack of independence of the 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.
In the key note paper, Dr Fahmida Khatun, Executive Director of the CPD, also estimated that the government would be able to save over $16 billion worth of resources (fossil fuel) and subsidies between 2023-2025 with investments in and implementation of renewable energy solutions (solar-based irrigation facilities and rooftops).
The initiative to transform the existing diesel irrigation system to a solar-based one and install solar panels on the rooftops of all primary schools will help the country’s transition to cleaner energy solutions, she said.
Regarding inflation, Fahmida said, “Inflation has been intensified from where it was. The Ukraine-Russia war was a major factor, but there may be many other reasons for it. The reason for increase in prices of locally produced goods is yet to be traced. In this case, the weakness of market management is a big reason.”
“The pressure on the middle class and the lower class is constantly increasing due to the inflation. Earlier, if food inflation increased, non-food inflation would decrease. But now both are growing in parallel,” she added.
She further said, “Currently, a four-member family is not able to take a compromise diet (without fish and meat) as Tk 9,557 for compromise diet and Tk 23,676 for regular diet is needed per month,”
Ahsan H Mansur, Executive Director of Policy Research Institute (PRI), said the USD crisis will not be resolved in January, and it could take at least another six months for the government to deal with this crisis effectively.
“Though it is officially said that the USD crisis will go away within the next month, it will not happen. There is uncertainty in exports. Remittances are not increasing even though manpower exports are going up. Alongside, there is also the pressure of debt repayment. Therefore, the crisis will not end so quickly,” he added.
Dr Salehuddin Ahmed, former Bangladesh Bank governor, said, “Influenced by others, wrong policies are being formulated here. The decision on the key variables of the monetary policy was taken sitting in the hotels. What a strange! We never heard of such an incident before.”
Raising question over four types of dollar price, he said, “Waiver on Cash Deposit Rate (CRR) and Statutory Deposit Rate (SLR) is now seen in the banking sector.”
CPD’s Chairman Rehman Sobhan presided over the dialogue while Planning Minister M A Mannan, Lawmaker Shamim Haider Patwary and economist Dr Zahid Hussain, among thers, spoke.