Banks have urged the government to take a series of measures in the upcoming budget to protect the banking sector from the ongoing financial meltdown.
Lenders are now in mired a bad state of affairs and the situation will worsen in the days ahead as there is no ray of hope of a V-shaped economic recovery given the blistering spread of coronavirus.
A V-shaped recovery means that the economy bounces back quickly to its baseline before the crisis, with no hiccups along the way.
The government should take steps to help businesses so that they can recover quickly and this will subsequently put a positive impact on the financial health of banks, the lenders said.
"The government should cut the source tax on the depositors' income from the fixed and deposit pension schemes," said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.
Depositors now pay 15 per cent tax on their profit stemming from the savings amount if they do not have a tax identification number (TIN). But the payable tax is 10 per cent on the profit if savers have the TIN.
The tax ratio should be cut so that depositors feel comfortable to keep their funds in banks, which will strengthen the financial health of lenders as well, said Rahman, also the immediate past chairman of the Association of Bankers, Bangladesh, a forum of managing directors of banks.
Banks' capacity to give out loans would expand if they could mobilise more funds from people, he said.
The majority of lenders are installing IT software and hardware as part of their move to enhance digital solutions for both credit and deposit products to tackle the pandemic.
The government should reduce the tax on IT equipment to a great extent to speed up the ongoing digital banking programme.
"This will help speed up the popularity of cashless transaction in the days ahead," Rahman said.
The small and medium enterprises should be offered incentives so that they can continue businesses bypassing the ongoing crisis. The enterprises that will not sack employees will be enlisted for support.
The upcoming budget should offer a merger and acquisition policy for banks as the financial health of lenders will worsen due to the economic fallout, Rahman said.
The government should also cut the corporate tax for banks as the ongoing financial recession will erode the profitability in the banking sector, he added.
A certain portion of corporate tax should be reduced for at least 3-4 years given the gravity of the pandemic-stricken economy, said Md Arfan Ali, managing director of Bank Asia.
The income of banks will decrease significantly as they have implemented the 9-per cent interest rate on lending, he said.
The government will have to borrow heavily from the banking sector to manage its deficit financing in the wake of the revenue shortfall.
But the cash-strapped banking sector would get a respite from the situation if the government keeps the onus on the central bank to manage the required funds, Ali said.
The government should not impose any extra tax on the banking sector for the next fiscal year, said Naser Ezaz Bijoy, chief executive officer of Standard Chartered Bangladesh.
"We have to keep in mind that default loans in the banking sector will increase in the months to come and this will reduce the balance sheet of banks."
Defaulted loans hit Tk 94,313 crore at the end of 2019, up 0.42 per cent year-on-year, according to data from the Bangladesh Bank.
The savers, whose deposits are up to Tk 100,000, should be rebated from the excise duty as they have been in a more stressed situation than the other segments of the society, Bijoy added.
The government should avoid imposing a corporate tax on provisioning, which banks keep against their default and unclassified loans, said Emranul Huq, managing director of Dhaka Bank.
Lenders are not permitted to enjoy the provisioning as income until they recover the defaulted loans.
"If lenders are allowed to do so, the liquidity base in the banking sector will improve and this will help them fight off a financial meltdown."