Muhith breaks silence over banking crisis

Finance Minister AMA Muhith yesterday hinted that he would take some 'special measures' for the banking sector next month.

"But it won't be possible to discuss it (the measures) at the moment," Muhith told the parliament in his closing budget speech.

The veteran finance minister, now 85, placed the budget for 2018-19 in parliament on June 7 and came under attack from opposition and some ruling party lawmakers for his silence about the growing irregularities in the banking sector.

Probably this criticism has forced the finance minister to dedicate a paragraph addressing the issues of the banking sector in his closing budget speech.

Muhith said there was a lot of talk in and outside parliament about the discipline and necessary reforms in the banking industry.

"I admit that the conditions of state banks are not up to our expectations and we are continuing to recapitalise these banks. But we need to understand that these banks often cannot operate on commercial basis."

For example, he said the state banks have to give concessionary loans for import of goods based on the order of the government. He also shed light on the private banks, which according to many, are being looted.

"The problem of the private banks is that they help each other and one bank's director gets loans from another bank," said Muhith.

The banking sector has been going through a difficult period for a long time because of growing nonperforming loans, irregularities and poor governance. Lately, liquidity crisis has become an extra burden on the banks.

A section of directors in private banks has been taking advantage of the situation.

They have successfully lobbied with the government to win some concessions, which include a one-percentage point cut in cash reserve ratio and an increase in the share of private banks in the deposits of the state-owned entities.

The central bank has also made funds cheaper for all banks by reducing its repo rate by 75 basis points.

In the budget for the next fiscal year, the finance minister has proposed a 2.5 percent cut in corporate tax for banks, non-bank financial institutions and insurance companies.