Banks facing liquidity crunch
It is barely surprising that commercial banks are undergoing a credit crunch and have turned to the central bank to manage the withdrawal pressure. Everyone in the banking sector saw it coming, but those responsible for taking actions didn't take any corrective measures.
Years of poor governance in the banking sector, government borrowing from banks and volatile foreign exchange markets have led to such a situation that may have long-term repercussions for the economy, in general, and our economic lifeline, the readymade garment sector, in particular.
Global credit ranking giant Moody's has recently announced that the outlook for Bangladesh's banking sector is negative. If the credit crunch prolongs and garment factories become unable to secure loans, this could even hold up the global supply chain, an analyst with the Finch Group had warned way back in April.
In one way or the other, the liquidity crisis is linked to the persistent loan default culture. According to the data provided by Bangladesh Bank, the amount of non-performing loans (NPLs) jumped to 11.5 percent of outstanding loans as of the end of September. The figure is likely to be higher in reality, as many loans have been unjustifiably rescheduled, often on political consideration, in some cases keeping the election in mind.
The government has rewarded several banks accused of enthusiastically disbursing loans to people with low credibility by bailing them out, instead of taking stern actions to end the scandals.
The authorities involved should now be cautious as signs of crack are beginning to appear. Rescuing banks by funnelling huge amounts of taxpayers' money may allow the government to avoid a short-term crisis. But if the government continues to ignore the deeply entrenched management crisis in banks and do not act to fix it, the next scandal that will befall us may not be within its ability to control.
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