Country’s banking sector is caught in an enervating trap characterised by high rates of interest, excess liquidity and declined growth in credits to private sector and intermediating low investment, according to an independent multidisciplinary think-tank findings.
Such a situation of the banking sector is attributed to poor risk management and high fraudulence, driven by captured governance and lax oversights. This altogether results in truncated profits to the shareholders.
Despite adoption of more than decade-long policy of liberalisation, deregulation and privatisation, it found interest rate and spread still too high to facilitate higher private investment.
“Captured governance through politically determined directorship for the nationalized banks, and family- and friends-domination in the boardrooms of the private-sector banks, meagre actions against the perpetrators, and slack surveillance by the Bangladesh Bank hinder maintaining any prudential system of management,” it observed.
Pointing at the increased non-performing loans and low returns on asset and equity, the research organisation said that the sector is inundated with severe structural rigidities, resulting in the disappointment of risk management.
In the January-April period of fiscal year (FY) 2013-14, average rate of interest was calculated at as high as 13.35 per cent and interest rate spread at 5.14 per cent. The high cost of funds caused further decline in private investment, as per its economic update.
Referring to the excess liquidity in the banking sector, Unnayan Onneshan reckons 64.09 per cent increase in excess liquidity from November 2013 to March 2014. Excess of liquidity amounted to about Tk 1362 billion at the end of March 2014, whereas it was Tk 830 billion in November 2013.
Decline in the rate of growth in credits will further drag down investment and consequentially lower the expansion of the gross domestic product (GDP), it predicted.
About the public-and private-sector credits, it stated that domestic credits recorded a decrease of 11.32 per cent at the end of March 2014 over March 2013 against the increase of 11.86 per cent in corresponding period of the previous year.
Growth of credits to the private sector registered at 11.46 per cent in March 2014 over March 2013 and witnessed lower than the growth of 12.72 per cent at the same time of the previous year, as per the press release.
The research organisation further pointed out that disbursement of industrial term loan stood at about Tk 92 billion in the third quarter of the FY 2013-14, the lowest in the last five quarters.
The growth rate in agricultural credit disbursement and recovery experienced lower trend as well as negative after December 2013. The growth rate of agricultural credit disbursement stood at -6.56 per cent, 3.60 per cent and 21.86 per cent in February, March and April of 2014 respectively.
“On the other hand, recovery of the agricultural credits has been increasing by an insignificant amount,” the think-tank said.
Besides the incidents of large-scale scams, the risk management “weakened to a dismal proportion”, the body, adding that the NPLs increased to 10.5 per cent in March 2014 from 8.9 in December 2013.
The overall returns on assets (ROA) stood at 0.9 per cent in 2013 from 0.60 per cent in 2012, whereas the rate was calculated at 1.3 per cent in 2011. The returns on equity (ROE) reached 10.8 per cent in 2013 from 8.2 per cent in 2012.
Unnayan Onneshan recommended improvement in supervision and regulatory capacity of the Bangladesh Bank and the streamlining of enforcement of prudential guidelines in order to check scams and fraudulence, ensuring efficacy of risk management in the banking system.
“Besides, a farsighted harmonisation of macroeconomic policies through adopting a monetary policy that will facilitate private investment and curb inflationary pressure and a fiscal policy that will channel adequate resources into productive sectors is required to reinvigorate the management of banks and recover credibility in the sector,” the policy analyst opined.