Crisis in banks to drag on if steps not taken: CPD
The crisis in the banking sector will linger unless the government takes effective measures to tackle the growing trend of financial scams and bad loans, said analysts yesterday.
They made the observations at a discussion on the proposed budget organised by the Centre for Policy Dialogue (CPD) at the Lakeshore Hotel in Dhaka.
The CPD said the proposed budget for the upcoming fiscal year has not taken adequate measures that can help the banking sector overcome the challenges it faces.
Rather, a number of measures have been taken that indicate to the contrary, said CPD Executive Director Fahmida Khatun while presenting the think-tank's analysis on the proposed budget.
CPD Chairman Prof Rehman Sobhan said the entire burden of underwriting the investment in the private sector and economic growth has been devolved on the commercial banking system, which is very unusual and dangerous.
"What is happening is that commercial banks based on deposits of short-term are now bearing the full risk of financing long-term investment," he said, calling it one of the most dangerous elements in the financial system.
He said long-term investment financing is largely provided by the capital market and specialised financial institutions as they are designed to take risks for long-term investment.
The stock market remains non-functional as a source of capital for new investors. As a result, short-term deposits are being used for financing long-term investments, he added.
This is a crisis that has been lingering for 10 years and will be carried over in the next 10 years unless the problem is addressed, said the noted economist.
Amir Khasru Mahmud Chowdhury, former commerce minister and a BNP leader, said no action has been taken against the unscrupulous people who have looted money from banks and the capital market.
Instead, the owners of banks have been given benefit by way of cutting corporate tax, he added.
Chowdhury called for the abolition of the bank and financial institutions division under the finance ministry. "Let the central bank do its job," he said.
Nihad Kabir, president of the Metropolitan Chamber of Commerce and Industry, opposed the recapitalisation of state-owned banks, saying that inefficient banks are being incentivised.
She said the capital market is not functioning well. Measures have also not been taken in the proposed budget to make the market effective. As a result, the burden has fallen on the financial sector, she said.
She demanded timely, efficient and cost-efficient implementation of taxpayer-funded projects and urged the government to ensure policy consistency so that investors can predict and invest.
Ragnar Gudmundsson, resident representative of the International Monetary Fund, suggested better public spending as well as risk-based supervision in the banking sector.
Hasan Tarique Chowdhury, a lawyer, said thousands of cases are pending with courts owing to delays in settlement.
"Budgetary allocation for the judiciary should be increased to bring about good governance in the financial sector," he said.
"There is nothing in the proposed budget to ensure good governance," said Zafrullah Chowdhury, trustee of Gonoshasthaya Kendra.
He called for strengthening of the local government to ensure good governance.
Planning Minister Mustafa Kamal said the government will reform the banking and financial sector and strengthen the central bank.
"The concerns related to the banking sector will go in two months," he said, adding that steps would be taken against the culprits no matter how powerful they are.
MA Mannan, state minister for finance and planning, said the government is yet to take the final decision on reducing the corporate tax for banks and non-banking financial institutions.
"The proposed budget is yet to be passed in parliament, so there is a scope to take decision whether the corporate tax will be cut or not."
The state minister claimed that the government is strictly monitoring Farmers Bank and hoped it will be run smoothly in the comings days thanks to a number of initiatives.
Sobhan also said Bangladesh and Vietnam were almost at the similar level 20 years ago. Today, Vietnam's exports stands at more than $200 billion while Bangladesh's external sales hover around $40 billion.
"There is a lack of diversification in Bangladesh's export basket."
He said Vietnam receives $10-12 billion in foreign investment every year whereas Bangladesh gets a little over $2 billion.
Over the years, policymakers should have discussed how to ensure corresponding levels of structural change in Bangladesh's economy in line with Vietnam's, said the economist. "Unfortunately, we have not got any guidance even though there are a variety of industrial policies," he said.
Responding, Kamal said the shortage of power and energy was one of the major factors that are discouraging investment. The government is taking steps to improve power and other infrastructures, he added.
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