Kazi Zahidul Hasan :
Terming the current liquidly crisis in banks as the ‘tip of an iceberg,’ economists hinted on Friday for a highly complex economic situation if the government fails to rein the crisis correctly.
They also criticized the government for taking ‘a carte blanche approach,’ to the crisis saying this can invite a long-term economic pain.
“Structural and governance problems are responsible for the liquidity crisis. It’s just the tip of an iceberg. A more complex situation would arrive if the government fails to handle the issue properly,” economist Dr Ahsan H Mansur told The New Nation yesterday.
High import is another cause for the liquidity crisis.
“Banks are losing deposit every year due to high
interest rate on savings tools. In the last three years, people have been investing heavily on savings tools because of their higher returns. It is leading to leakage of bank’s liquid fund,” said Dr Mansur.
Moreover, big loan scandals, rising non-performing loans and connected lending by bank directors have pushed many banks to liquidity crisis and financially insolvent.
“The government’s latest move to cut the bank’s cash reserve requirement (CRR) would not help to ease the current liquidity crunch unless the persisting structural and governance problems are addressed immediately,” he added.
“A dramatic increase in import forced banks to buy additional dollar at high rates from the central banks for paying import bills. As a result, big cash went to the central bank’s vaults tightening the liquidity situation in commercial banks further,” he said.
Dr Ahsan H Mansur also criticized the government for interfering the activities of the central bank saying that it is impeding the proper functioning of the country’s apex bank.
“The government’s intervention has made the control of the central bank further weak which in turn will further deepen the banking crisis. The central bank is an autonomous body bylaw. So, the government should let the central bank to perform its core activities,” he said.
“A deep rooted governance problem along with policy inconsistency has led to the liquidity crisis,” economist Dr Zahid Hussain told The New Nation, adding, massively growing import, high credit growth and illicit financial flow are also responsible for the situation.
He said the commercial banks have hiked the interest rate on deposits with cash flow declining. Despite the increased interest rate, money did not come back to them, as people were not interested to put their money in banks due to the government’s NSD policy and loan scams.
Dr Zahid Hussain, chief economist at World Bank Dhaka office, said loan irregularities earlier surfaced in the public banks. But now it also spread to private banks eroding confidence of the depositors.
“Banks have failed enhance liquid funds from mobilizing more deposits and recovery of default loans. As a result, they were literally left without any money to extend new loans. It has forced them to approach the government for undue facility to enhance liquid funds,” he added.
Expressing dismay over the current state of banking sector, Dr Zahid Hussain, said the whole banking sector now turns into a ‘collusive’ industry ruled by a politically connected powerful quarter. The quarter has been enjoying undue facilities from the government and regulator time to time taking advantage of their political connection.
“The government move to reduce CRR and keep 50 per cent of its deposit to private banks is the latest example of the undue advantage. The government came up with the move undermining the central bank. Such a government approach could send wrong signal to the sector making the banking crisis more intense.”
Dr Zahid Hussain also demanded for immediate review of the government’s NSD policy, punitive actions against errant bank directors and wilful defaulters and restore corporate governance in banks.
“If the government fails to come up appropriate measures, a worse situation may appear in the scene severely impacting trade, investment and economic growth,’ he added.
Terming the current liquidly crisis in banks as the ‘tip of an iceberg,’ economists hinted on Friday for a highly complex economic situation if the government fails to rein the crisis correctly.
They also criticized the government for taking ‘a carte blanche approach,’ to the crisis saying this can invite a long-term economic pain.
“Structural and governance problems are responsible for the liquidity crisis. It’s just the tip of an iceberg. A more complex situation would arrive if the government fails to handle the issue properly,” economist Dr Ahsan H Mansur told The New Nation yesterday.
High import is another cause for the liquidity crisis.
“Banks are losing deposit every year due to high
interest rate on savings tools. In the last three years, people have been investing heavily on savings tools because of their higher returns. It is leading to leakage of bank’s liquid fund,” said Dr Mansur.
Moreover, big loan scandals, rising non-performing loans and connected lending by bank directors have pushed many banks to liquidity crisis and financially insolvent.
“The government’s latest move to cut the bank’s cash reserve requirement (CRR) would not help to ease the current liquidity crunch unless the persisting structural and governance problems are addressed immediately,” he added.
“A dramatic increase in import forced banks to buy additional dollar at high rates from the central banks for paying import bills. As a result, big cash went to the central bank’s vaults tightening the liquidity situation in commercial banks further,” he said.
Dr Ahsan H Mansur also criticized the government for interfering the activities of the central bank saying that it is impeding the proper functioning of the country’s apex bank.
“The government’s intervention has made the control of the central bank further weak which in turn will further deepen the banking crisis. The central bank is an autonomous body bylaw. So, the government should let the central bank to perform its core activities,” he said.
“A deep rooted governance problem along with policy inconsistency has led to the liquidity crisis,” economist Dr Zahid Hussain told The New Nation, adding, massively growing import, high credit growth and illicit financial flow are also responsible for the situation.
He said the commercial banks have hiked the interest rate on deposits with cash flow declining. Despite the increased interest rate, money did not come back to them, as people were not interested to put their money in banks due to the government’s NSD policy and loan scams.
Dr Zahid Hussain, chief economist at World Bank Dhaka office, said loan irregularities earlier surfaced in the public banks. But now it also spread to private banks eroding confidence of the depositors.
“Banks have failed enhance liquid funds from mobilizing more deposits and recovery of default loans. As a result, they were literally left without any money to extend new loans. It has forced them to approach the government for undue facility to enhance liquid funds,” he added.
Expressing dismay over the current state of banking sector, Dr Zahid Hussain, said the whole banking sector now turns into a ‘collusive’ industry ruled by a politically connected powerful quarter. The quarter has been enjoying undue facilities from the government and regulator time to time taking advantage of their political connection.
“The government move to reduce CRR and keep 50 per cent of its deposit to private banks is the latest example of the undue advantage. The government came up with the move undermining the central bank. Such a government approach could send wrong signal to the sector making the banking crisis more intense.”
Dr Zahid Hussain also demanded for immediate review of the government’s NSD policy, punitive actions against errant bank directors and wilful defaulters and restore corporate governance in banks.
“If the government fails to come up appropriate measures, a worse situation may appear in the scene severely impacting trade, investment and economic growth,’ he added.
