Kazi Zahidul Hasan :
The current banking crisis could leave a domino effect on various economic sectors lowering GDP growth and accelerating unemployment, said economists.
“A banking crisis means banks run short of money due to reckless lending. Such a lending practice by banks pushed up bad loans to record high sending them to liquidity shortages,” economist Dr Zahid Hussain told The New Nation yesterday.
According to the central bank’s latest data, the total amount of bad loan in banks is around Tk 1,25,000 crore.
“High exposure of bad loans in the face of governance problem puts the whole banking sector at risk. Many banks are now facing liquidity shortages due to improper credit management. If the banks face liquidity shortages for a prolonged period, it will have a major impact on investment, depositors, business and consumers invariably effecting economic growth and can cause unemployment,” said Dr Zahid Hussain.
Bangladesh economy grew by a record 7.28 percent in the 2016-17 fiscal, beating the 7 percent target, based on increased revenue collection, high foreign currency reserves propelled by a spike in export and remittance inflow.
“Bad governance and poor oversight have led the banking sector to an unprecedented crisis. Many banks are facing liquidity crisis as a result of soaring bad debt and loan scams. At least 13 of the 57 banks are now on the central bank’s list with bad financial state putting a systematic risk on whole banking sector,” said former
Bangladesh Bank (BB) Governor Dr Salehuddin Ahmed.
He said loan scandals at Farmers Bank and NRB Commercial Bank and hostile takeover of several private banks by a Chittagong-based conglomerate have also created chaos in the banking sector.
“The central bank, in a bleated move, reconstituted the Boards of Farmers Bank and NRB Commercial Bank. But no measure is yet to be taken to punish errant directors, “Dr Salehuddin Ahmed, adding, “It should take stringent measure against the offenders for maintaining discipline in the banking sector.” He said that the current banking practice would make people shaky to put their deposits in banks. If they fear savings are not safe in a bank, they will switch for alternative investment leading to lower deposits at banks.
“The banking sector is not in good condition after being hit by a number of loan scandals at public and private banks. Loan scams seem never ending in a poor regulatory regime. Even Tk 5,000 crore fresh loan scandal at Janata Bank surfaced in media recently just after the Farmers Bank loan scam reflecting the banking crisis in Bangladesh,” economist Dr Ahsan H Monsur told The New Nation.
He said the country’s banking sector is undergoing a chaotic situation due to financial irregularities and mismanagement. Defaulted loans remain a major concern as the figure now tops all time high at almost 11 percent of the total outstanding loans.
“All these development is crippling lending ability of the banks which in the long run would affect the overall economy by lowering GDP growth,” apprehends Dr Ahsan H Monsur.
He said banks exposed with liquidity crisis could force them to cut back on lending. Therefore, firms and businesses that wish to borrow money to finance investment may find it very difficult to get a satisfactory loan. As a consequence, they will reduce investment and employ fewer workers. If there is a significant fall in investment levels, then this will lead to lower economic growth and higher unemployment.
Dr Ahsan H Monsur said the current liquidity crisis has forced many banks to hunt deposit aggressively. It already pushed up both deposit and lending rates creating a fresh volatility in money market. “High lending rates are expected to impact the overall private investment. A fall in investment level causes lower economic growth,” he added.
