Key Takeaways
- • Economist Mahbub Ullah warned at the 11th Annual Banking Conference at the Bangladesh Institute of Bank Management (BIBM) in Mirpur, Dhaka, that heavy government borrowing has made the banking sector fully oriented toward financing the state, crowding out private sector credit.
- • Ullah attributed the borrowing to a large revenue deficit and a weak tax-to-GDP ratio, and cited falling public confidence in banks, rising loan defaults and uncertainty over future interest and instalment payments.
- • Former Dhaka University economics professor Barkat-e-Khuda said the sector was split between about 10 well-performing banks and the rest in severe crisis, with the capital adequacy ratio at a record negative level.
- • Khuda cited idle liquidity across the sector of about BDT 4.5 trillion alongside acute liquidity shortages at weak and Shariah-based banks, and estimated BDT 5 trillion embezzled through fake loans and corruption.
- • Khuda said Bangladesh Bank is carrying out a major restructuring of the financial sector to protect depositors and called for fewer banks and the merger of state-owned and specialised banks.
Summary
National Professor Dr Mahbub Ullah warned that Bangladesh's banking sector has become fully oriented toward financing the government because of the state's large revenue deficit and a weak tax-to-GDP ratio, and that private sector credit is being crowded out as a result. Speaking at the opening session of the second day of the 11th Annual Banking Conference at the Bangladesh Institute of Bank Management in Mirpur, Dhaka, Ullah said the government's heavy monthly borrowing was squeezing credit available to the private sector. The two-day conference, on reconstruction of the banking sector to accelerate economic growth, has Bonik Barta as its media partner.
Ullah said public confidence in the banking sector had fallen to near zero, though he noted that some good banks and honest individuals remained and could serve as examples for reform. He described the government's regular borrowing and uncertainty over future interest and instalment payments as major warning signs for the economy. He also characterised the distressed state of the sector and the prevalence of non-performing loans as symptoms of a broader systemic problem affecting administration, business, education and health, and argued there was no quick fix, with reform requiring time, political will and correction of the political system.
In a keynote paper, former Dhaka University economics professor Barkat-e-Khuda said the sector's potential was being held back by non-performing loans, weak governance, capital shortfalls, liquidity problems, money laundering and low productivity. He said political influence, flexible policies and repeated loan restructuring had fuelled abnormally high NPLs, and that family control of bank boards and a lack of skilled independent directors had created structural governance problems. According to Khuda, the shortfall in provisions had widened and the capital adequacy ratio had fallen to a record negative level, with the sector split between about 10 well-performing banks and the rest in severe crisis.
Khuda said weak and Shariah-based banks were suffering acute liquidity shortages even as idle liquidity across the sector had risen to about BDT 4.5 trillion. He estimated that about BDT 5 trillion had been embezzled through fake loans and corruption, and that a political and business syndicate had siphoned BDT 2.5 trillion to BDT 3 trillion abroad. He said Bangladesh Bank was carrying out a major restructuring of the financial sector to protect depositors, and that the number of banks should be reduced, with state-owned and specialised banks merged into a more manageable system. The session was chaired by BIBM Director General Md Ejazul Islam. The conference's final day was scheduled to feature seven plenary sessions and 56 research papers.
Ullah said public confidence in the banking sector had fallen to near zero, though he noted that some good banks and honest individuals remained and could serve as examples for reform. He described the government's regular borrowing and uncertainty over future interest and instalment payments as major warning signs for the economy. He also characterised the distressed state of the sector and the prevalence of non-performing loans as symptoms of a broader systemic problem affecting administration, business, education and health, and argued there was no quick fix, with reform requiring time, political will and correction of the political system.
In a keynote paper, former Dhaka University economics professor Barkat-e-Khuda said the sector's potential was being held back by non-performing loans, weak governance, capital shortfalls, liquidity problems, money laundering and low productivity. He said political influence, flexible policies and repeated loan restructuring had fuelled abnormally high NPLs, and that family control of bank boards and a lack of skilled independent directors had created structural governance problems. According to Khuda, the shortfall in provisions had widened and the capital adequacy ratio had fallen to a record negative level, with the sector split between about 10 well-performing banks and the rest in severe crisis.
Khuda said weak and Shariah-based banks were suffering acute liquidity shortages even as idle liquidity across the sector had risen to about BDT 4.5 trillion. He estimated that about BDT 5 trillion had been embezzled through fake loans and corruption, and that a political and business syndicate had siphoned BDT 2.5 trillion to BDT 3 trillion abroad. He said Bangladesh Bank was carrying out a major restructuring of the financial sector to protect depositors, and that the number of banks should be reduced, with state-owned and specialised banks merged into a more manageable system. The session was chaired by BIBM Director General Md Ejazul Islam. The conference's final day was scheduled to feature seven plenary sessions and 56 research papers.
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