Business News

Banking sector now an orphan

The banking sector, which is currently going through choppy waters thanks to rising loan irregularities and deteriorating corporate governance, is being enabled by those who were supposed to keep it in check, said the Centre for Policy Dialogue. The independent think-tank organised the meet at the CIRDAP auditorium to share its recommendations for fiscal 2018-19’s national budget.

The banks’ cash reserve requirement, which is a specified minimum fraction of the total deposits that banks must hold as reserves either in cash or as deposits with the central bank, was cut by one percentage point and set at 5.5 percent. The repo rate, which is the rate at which banks take loans from the central bank, was lowered to 6 percent from 6.75 percent.

From this month, the private banks can keep 50 percent of the government funds. Previously, they could hold 20 percent of the funds for annual development programme and 25 percent from the revenue budget. The CPD said the decision to slash the CRR is likely to encourage the poorly performing private banks to continue with their business-as-usual practices.

The CRR cut may also encourage banks to lend more aggressively and indiscriminately, which would also raise the risk of an increase in classified loans, it added. At the end of December last year, the overall non-performing loan ratio in the banking sector stood at 10.70 percent, up from 10.10 percent six months earlier.

It also cautioned on rising import payments and pressure on the balance of payments, volatility in foreign exchange market and depreciation of taka against the US dollar as well as increase in inflation. The think-tank recommended the BB pursue a cautious monetary policy to curb inflation and ease the pressure on BoP.

It also recommended restraining the influence of vested interest groups while formulating national economic policies, vigilance over the role of commercial banks and an end to recapitalisation of state banks with taxpayers’ money. Between fiscal 2009-10 and fiscal 2016-17, the government allocated Tk 15,705 crore for the purpose of recapitalising the state lenders.

As alternative avenues, the CPD proposed using revenue to increase capital, exploring private investors to buy bank shares or merging with other banks.

Source: https://www.thedailystar.net/business/banking-sector-now-orphan-cpd-1564003



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