State banks to shoulder the burden of delivering stimulus packages

The government is mulling over leveraging the state-run lenders' vast branch network to implement a major portion of the stimulus packages.

The number of branches and banking operation of the state-run banks and financial institutions is higher than the private ones, which will help materialise the packages smoothly in both the rural and urban areas, said officials of the finance ministry.

As of November last year, the country's 59 banks have 10,467 branches across the country, according to data from the central bank.

Of the sum, the four state-owned banks -- Sonali, Janata, Agrani and Rupali -- together account for 34 per cent of the branches, and 56 per cent of the branches are located in the rural areas.

The underprivileged people have little access to private banks, which is another reason behind the government's move to use the state lenders.

Besides, private banks are now facing a liquidity crunch in the wake of deposit withdrawal by clients after starting the countrywide shutdown since March 26.

Against the backdrop, the finance ministry will arrange a discussion with the managing directors of all state lenders on May 7 to explore ways to implement the packages by using their banking network, said an official of the ministry working on the matter.

Both the government and the central bank have so far declared 18 stimulus packages worth Tk 95,619 crore to tackle the ongoing economic fallout from the global coronavirus pandemic.

The packages, which are equivalent to 3.5 per cent of the country's GDP, will be implemented under the supervision of the Bangladesh Bank and the finance ministry.

The latest move by the finance ministry is in line with a World Bank recommendation.

In a report styled "The Cursed Blessing of Public Bank", the Washington-based multilateral lender on April 12 said the state-run banks in Bangladesh and other South Asian nations can play a positive role in figuring out the financial crisis from the coronavirus pandemic by providing services to the rural economy.

Although the public banks suffer from inefficiency and are likely to reduce competition and thus slow innovation, their lending can be countercyclical, and they are more likely than private banks to provide services to people in remote areas and poor people during a recession, it said.

In the current economic situation, public banks are needed to provide countercyclical lending -- as they did during the last global financial crisis between 2008 and 2010, the WB added.

In Bangladesh, the state-run banks have long been the Achilles heel of the banking sector thanks to their escalating default loans.

As of last year, more than 50 per cent of the defaulted loans are with the eight state-run banks.

But there is little scope for the state-run banks to misuse funds from the stimulus package, which will be provided from the refinance schemes.

The central bank will provide more than Tk 50,000 crore in the form of six refinance schemes to keep the wheels of the economy moving.

The BB will provide fund from the refinance schemes by ensuring the credit history of the borrowers; no habitual borrower will be allowed to take any benefit from the stimulus packages, said a BB official.

The state-run banks though are raring to act as the delivery personnel for the stimulus package.

"We are well-prepared," said Md Obayed Ullah Al Masud, managing director of Rupali Bank, adding that the lender normally gives financial services to the rural poor.

Janata Bank has disbursed more than Tk 9,000 crore to the country's small and medium enterprises sector and it will extend further credit support to the zone to tackle the crisis, said Md Abdus Salam Azad, its managing director.

Agrani Bank has adequate liquidity, which will enable it to implement the stimulus packages, said its Chairman Zaid Bakht.

"But a good amount of loans under the stimulus package will have to be provided to borrowers without collateral securities, which is a matter of concern," he said, while advising the government to use the microfinance institutions to implement the packages as well.

In another notice, the finance ministry asked the state lenders to adopt austerity measures given the ongoing recession.

The ministry asked banks to halt to purchase of immovable assets, stop renting new office space and cut back on expenditure for the board and annual general meetings.

The chairmen and managing directors of the banks have been instructed not to go abroad unnecessarily.

The fund allocation for printing promotional materials for the banks' financial products will have to be reduced as well.