Long-term loans from short-term deposits weaken banks: experts
Heavy dependence on banks for long-term funding is weakening the financial health of local lenders, according to analysts.
And since a number of banks in the country are suffering from a huge amount of non-performing loans, entrepreneurs should turn to the stock market to raise funds if they need long-term capital, they said.
Their comments came at a seminar, styled "Barrier of listing of well-performing companies and its way out", organised by a business news portal, businesshour24.com, yesterday.
Prof Shibli Rubayat-Ul-Islam, chairman of the Bangladesh Securities and Exchange Commission (BSEC), said it is risky when banks provide large, long-term loans from their short-term deposits.
This is because the rate of non-performing loans is so high that if the provisioning system had been absent, many banks would have been bound to close.
"Doing business is full of uncertainties so when a company incurs losses and the entrepreneur defaults on loans, then all companies suffer, even well-performing ones," he said while addressing the event as chief guest.
"So, we are trying to bring the companies to the stock market for meeting their capital needs but we are facing some challenges in this regard and solving them patiently."
The BSEC chairman went on to say that if a company seeking entry to the stock market properly submits all the relevant documents, then its initial public offering could be approved within seven to 30 working days.
"People go to banks for their capital needs because bank loans are easy to get," said Faruq Ahmad Siddiqi, a former chairman of the BSEC.
"So, as long banks have enough liquidity to finance long-term projects, entrepreneurs will not come to the stock market. Besides, the domestic stock market does not match the country's economic vibrancy as it booms and bursts without any economic reason."
Compared to how Bangladesh's economy grew last year, the stock market did not perform at the same pace. Under the circumstances, only a few good companies have come to the stock market in the last few years.
"So, investors also suffer in finding good scrips to park their hard-earned money," Siddiqi said.
Although bourses are well-poised to provide long-term funding solutions, only 0.07 per cent of the country's financing needs were met through the stock market in 2020 while the rest came from banks, said Mamunur Rashid, president of the Institute of Cost and Management Accountants of Bangladesh.
"Tax evasion should be stopped by any means to bring the companies to the stock market. Companies often shy away from going public as they come under the BSEC scanner and other legal bindings once listed," he added.
Sayedur Rahman, president of the Bangladesh Merchant Bankers Association, Akter Hossain Sannamat, adviser to Businesshour24.com, and Amirul Islam, publisher of the online news portal, also spoke.