Economists call for visible actions
The country's top economists yesterday unanimously suggested the Bangladesh Bank take visible actions against irregularities at Islami Bank Bangladesh Limited (IBBL), scamsters and willful loan defaulters to restore confidence in the banking sector.
They also raised the issue of allegations of loan and ownership concentration of some banks to a certain business group, namely S Alam Group, and urged the central bank to take measures to discipline the financial sector.
Economists placed recommendations at a closed-door meeting at the Bangladesh Bank.
The central bank convened the meeting with economists at the Bangladesh Institute of Development Studies (BIDS), the Policy Research Institute of Bangladesh (PRI), and the South Asian Network on Economic Modeling (Sanem) at its headquarters.
BB Governor Abdur Rouf Talukder and top officials were present.
Bangladesh's financial sector is currently going through one of the toughest challenges in its history with people's confidence hitting the lowest ebb for the unabated loans scams, the liquidity crisis and the volatility in the foreign exchange market.
"It is high time to restore confidence. This is the best time to bring back credibility in the banking sector," said Ahsan H Mansur, executive director of the PRI, after the meeting.
"The central bank has to act immediately to find out if there are any irregularities at Islami Bank," he said, suggesting the BB consider restructuring the board and hold the bank's management responsible.
A High Court bench on December 4 directed the authorities to probe the alleged loan scams in Islami Bank Bangladesh Ltd (IBBL), Social Islami Bank Ltd (SIBL) and First Security Islami Bank.
The bench asked S Alam Group to come up with explanations on the reports that it took Tk 30,000 crore from IBBL and to place relevant documents in this regard before the court.
At yesterday's meeting, the economists also wanted the BB to raise the lending rate cap from the present 9 per cent with a view to fighting inflation and coming out from the multiple exchange rates of the US dollar to address the volatility in the foreign exchange market, curb illegal money transfer through hundi and prevent capital flight.
They also called on the BB to play an independent role. However, the suggestions were mainly concentrated on disciplining the banking sector.
"We have suggested clear actions against scamsters and loan defaulters," said Sanem Executive Director Selim Raihan.
In Bangladesh, non-performing loans are high and are increasing, eroding the health of the banking sector.
The ratio of classified loans, which was 7.93 per cent at the end of December 2021, rose to 9.36 per cent in September this year, Bangladesh Bank data showed.
"NPL is a governance issue in the banking sector," Raihan said.
At the meeting, high-ups of the central bank shared the steps the central bank has taken to overcome the current economic crisis and also informed that they faced pressure from various quarters.
The officials also informed the economists about the inspection it has launched into IBBL following allegations of irregularities in loan sanctioning to certain borrowers and the restriction on the disbursement of loans, according to the participants.
An economist, who attended the meeting, said the issues of the shortage of foreign exchange and the volatility in the exchange rates were also discussed.
"They listened to us and it seemed that they were convinced," he said.
Sanem Executive Director Raihan said the current inflation data does not reflect the real scenario as prices are measured using the fiscal year of 2005-06 as the base year.
"It is vital to address the problem to properly plan to contain inflation.".
The economics professor at the University of Dhaka also reiterated his calls to withdraw the interest rate cap.
"Otherwise, it will be tough to control inflation," he said.
The central bank has maintained the interest rate cap on loans since April 2020.
According to Raihan, money laundering out of the country also creates demand for hundi, an illegal cross-border money transfer system.
Mansur said the crisis in the foreign exchange is going to be over as imports are falling and exports are rising.
The former economist at the International Monetary Fund recommended the BB reduce the spread in the exchange rate of the US dollar.
"The spread should be 2 to 2.5 per cent," he added.
However, there is a debt overhang and it will not be over soon, he said, adding that economists recommended measures to address the problem.
"It will also yield positive results if the central bank makes the interest rate flexible."
The meeting was part of the BB's preparation to formulate the next monetary policy, said a central banker who attended the meeting.
The monetary policy is likely to be unveiled in January.
"We have discussed macroeconomic indicators and the global economic scenario. We also shared the actions we have taken so far," added the BB official.
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